Old Rules in a New Era: The WTO and the Resurgence of Industrial Policy through the Lens of the SCM Agreement

Old Rules in a New Era: The WTO and the Resurgence of Industrial Policy through the Lens of the SCM Agreement | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Old Rules in a New Era: The WTO and the Resurgence of Industrial Policy through the Lens of the SCM Agreement Petr Svatoň, Helena Drdlová This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-6454403/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract The global economy is undergoing a major transformation marked by a rise of state economic interventionism, reflected especially in the return of industrial policy. The article examines how this resurgence intersects with the existing multilateral trade framework, namely the WTO’s Agreement on Subsidies and Countervailing Measures (SCM). Drawing on an analysis of a database of all WTO disputes invoking the SCM Agreement, the article shows that the regime has historically been relatively permissive. The new industrial policy, while seemingly at odds with the ethos of liberal globalization, operates largely within the latent flexibilities of the WTO framework rather than in open defiance of it. The SCM Agreement’s limited scope and enforcement capacity may serve as an example of a new modus operandi for the organization in the context of increasing state interventionism, enabling a form of coexistence between multilateral trade rules and a more active use of industrial policy. WTO SCM Agreement subsidies industrial policy deglobalisation Figures Figure 1 Figure 2 Figure 3 1. Introduction The global economy has entered a transformation era. Trends such as the slowdown of globalization (The Economist 2019 ; Antràs 2020 ; Dadush 2022 ; Aiyar et al. 2023 ), securitization of economic matters due to rising geopolitical tensions (Livesey 2018 ; Irwin 2020 ; Babić, Dixon, and Liu 2022 ), and a greater involvement of the state in the economy (Chang and Andreoni 2020a; Juhász, Lane, and Rodrik 2024) add up to a complex shift in the global economy. This opens a number of new questions for the field of international political economy centered around the motivations of the changes in economic policy (see for example Kennedy and Lim 2018 ; Mattoo and Staiger 2019; Ciuriak 2019 ) and the economic impacts of the emerging economic nationalism (see for example Li, He, and Lin 2018 ; Itakura 2020 ; Kumar Mishra and Karthik 2020; Walmsley and Minor 2020 ). Among the many aspects of the turn away from neoliberalism is its relation with global economic institutions created since 1945 with the general goal of fostering economic cooperation and openness (among the studies that examined this issue, see for example Hoekman and Nelson 2020; O’Neil 2021 ; or Aiyar et al. 2023 ). The World Trade Organization (WTO) is among the most important of these organizations, as it was formed at the peak of the neoliberal era to oversee a set of international economic agreements intended to ensure a predictable global economic environment and to safeguard free trade, as well as to facilitate further liberalization. Its core mission can therefore be interpreted as preventing the return of precisely the type of protectionism and economic nationalism that is currently re-taking root across the world. The WTO has been severely weakened and has lost much of its credibility since the first Trump administration. Under the first Trump administration, the US disabled the functioning of its Appellate Body and thus hamstrung its crucial dispute settlement system by blocking the appointment of new judges (Bahri 2019 ; Khan and Wu 2021). At the same time, the US also openly defied the WTO’s substantive rules by unilaterally imposing significant new tariffs, in violation of the most favored nation principle and US tariff bindings (Brewster 2018 ). And while it is not yet possible to assess the long-term impacts of actions taken during the second Trump administration, there is little doubt of their destabilizing nature. Overall, these steps weaken the WTO as an institution and put into question the viability of its oldest and most central rules as a protector of free global trade. The problem of the inability of the WTO to prevent the Trump trade wars, and the incompatibility of the new rounds of US tariffs and retaliatory tariffs of China and other nations, have been studied by a number of scholars (Brewster 2018 ; Adekola 2019 ; Nwoke 2020 ; Evenett 2024 : 202). However, significantly less attention has been paid to another, more ambiguous trend that accompanies the transformation of the global economy: that is the return of the state as a more active economic actor, reflected especially in the return of industrial policy. The emerging literature on industrial policy has identified numerous, often interconnected reasons why the return of more active industrial policy takes place. These include facilitation of the green transition (Rodrik 2014 ), mitigation of the impacts of the COVID-19 pandemic, and reduction of vulnerabilities in supply chains exposed by the pandemic (Meyer 2020 ; Ferrannini et al. 2021 ; Kannan and Feldgoise 2022; Bown 2022 ), supplying Ukraine with armaments and dual-use products (Dullien and Hackenbroich 2022), or adjustment of market economies to the rise of China with its mixed economic model (Terzi, Singh, and Sherwood 2022; Goldwyn and Clabough 2023). While the US trade protectionism under both Trump administrations may prove to be a temporary phenomenon related to the idiosyncrasies of the MAGA movement, many other factors, such as the mitigation of climate change or geopolitical competition with China, appear to be more long-term, structural trends. The re-emergence of industrial policy is therefore shaping up to be a process deeply rooted in the return of the state as a more active economic actor (a sentiment expressed for example by Mazzucato 2016 ). The interplay of re-emerging industrial policy and the existing regulatory framework of the WTO is a topic of major importance from the perspective of global economic governance. Our article explores the extent to which the emerging wave of industrial policy represents a departure from WTO commitments, and to what extent does it merely take advantage of policy space that has always existed under the WTO rules but had not been fully utilized previously. We study the return of industrial policy in the form of state subsidies, which have been by far the most commonly used type of trade intervention since 2009, thus overshadowing the use of tariffs (Evenett 2019 ). Nevertheless, the WTO regime for subsidies, concentrated in the Agreement on Subsidies and Countervailing Duties (SCM Agreement) has been relatively under-studied to date and the existing literature is highly fragmented between political economy and international law research. There is a broad agreement that the SCM Agreement’s regime for subsidies is less restrictive and more difficult to enforce than the GATT regime for tariffs (Amsden and Hikino 2000; Hoekman and Kostecki 2013; Singh and Jose 2016 ; Chang and Andreoni 2020a; Gulotty 2022 ), and that there is a significant lack of transparency in reporting both the quantity and quality of industrial subsidies by the WTO member states (Wolfe 2021 ; Evenett 2024 ). However, the most glaring research gap is a more systematic study of the enforcement of the SCM Agreement: the existing literature is either based on an analysis of the text of the agreement itself, without taking enforcement into account (this is the case of most IPE literature dealing with the issue, such as for example Akyüz 2008 or Chang and Andreoni 2020b ), or approaches the problem on a case-study basis (this is typical for the more technical research carried out by scholars of international trade law, such as Charnovitz and Fischer 2014; Ornelas and Puccio 2020; or Dhingra and Meyer 2021). We argue that a more systematic study of the enforcement of the SCM Agreement is crucial for our understanding of the impacts that the re-emergence of industrial policy has on the WTO. In order to address this research gap, we have assembled a database of all WTO disputes launched on the basis of the SCM Agreement since the WTO’s foundation in 1995 and studied the number of launched disputes, the lengths of proceedings, and the success rate of subsidizing states in defending their actions. Based on our data, we show that prior to the disabling of the Appellate Body, the WTO’s ban on prohibited subsidies (that is subsidies that seek to directly influence international trade by promoting exports or suppressing imports) had been relatively well-enforced with common disputes frequently ending in a decision against the subsidizing state. However, the rules for the category of actionable subsidies (that is subsidies not directly contingent on interfering with international trade, which are not outright prohibited by the SCM Agreement and can only be proclaimed as WTO-inconsistent on a case-by-case through dispute settlement) had always been enforced very sporadically, and mostly only in cases where their use was combined with another perceived violation of WTO rules. This suggests that the regime for the use of actionable subsidies is highly permissive, even when enforced by a fully functioning Dispute Settlement Body (DSB). Based on these findings, we argue that the renewed use of targeted subsidies does not necessarily violate countries’ WTO commitments and can to a large extent coexist with the WTO regime established at the height of the neoliberal era in 1995. The permissiveness of the WTO regime on subsidies may serve as an example of a new modus operandi for the organization in the context of increasing state interventionism. The weakness of the WTO’s subsidy regime can also be seen as a “virtue of last resort”, as it allows member countries to practice more active industrial policy while still retaining the WTO as a relevant body for international cooperation. The rest of the article is organized as follows. In section 2 , we present the current state of debate on the transformation of the global economy, focusing on the argument that the global economy is experiencing a rise of economic nationalist thinking, which results in a greater role of the state in the economy. Subsequently in section 3 , we present evidence that industrial policy is making a return, focusing on industrial subsidies as one of its most important instruments. In section 4 , we overview the structure and most important provisions of the SCM Agreement and continue our analysis in section 5 by presenting our database of WTO disputes on subsidies. In section 7 , we discuss the implications of the weakness of the SCM Agreement in regulating the use of actionable subsidies in the context of their increasing use by states. Section 8 serves as the article’s conclusion. 2. Transformation of the global economy and the return of the state The global economy is in a state of transformation: from the Great Recession to the US-China trade war, and the pandemic-induced global supply chain crisis, the events of the last decade and a half are reshaping the global economic landscape, and gradually eroding the laissez-faire paradigm that has dominated the last four decades. What naturally follows is a widespread debate on the causes, extent, and implications of these changes, as well as their exact nature. The existing literature on the current transition trends takes two different stances: one is the “deglobalization” explanation, which sees the current developments mainly as a natural slowdown following the hyper-globalization era. The other is the “neo-mercantilist” explanation, according to which states increasingly intervene in the economy to achieve strategic and geopolitical objectives, marking a departure from the neoliberal era. The debate on deglobalization focuses mainly on the trade elements of global integration and its possible reverse. A generally accepted term is “slowbalization” (The Economist 2019 ), which presents the argument that the slowdown of global trade integration which took place in the wake of the Great Recession was primarily a consequence of hyper-globalization in the 1990s and 2000s. An extensive debate takes place, in which some authors emphasize the “inevitability” of such a course of events and stress the continuing interconnectedness of the global economy (Antràs 2020 ; Dadush 2022 ), while others warn that more profound changes are taking place and the deglobalization process goes beyond mere restoring of balance (Livesey 2018 ; Irwin 2020 ). Aiyar et al. ( 2023 ) present the current development as a risk of increasing economic fragmentation, which affects all aspects of the global economy from trade and monetary systems to technology diffusion, and cross-border labor and capital flows. As they claim, the world is experiencing a shift from the liberalization era (characterized by a gradual removal of trade barriers in large emerging market economies and the establishment of the WTO as an institution for overseeing the multilateral trade regime) to a “slowbalization” era and the plateauing of globalizing tendencies. The neo-mercantilist explanation perceives the current trends as deeper systemic changes in the role of the state in and towards the economy. It emphasizes the growing importance of security and geopolitics in influencing economic matters and state interference in the economy. The new term “geoeconomics” describes a country’s (primarily a major power’s) ability to “use their financial and economic strength to extract economic and political surplus from other countries around the world” (Clayton, Maggiori, and Schreger 2023 : 2). Under the dissolving neoliberal paradigm, the line between economic and political power becomes blurred, as the economy can now be legitimately used as a geopolitical tool in a world with increasing security risks (Poon 2024 ). The role of the economic instruments in states’ pursuit of geopolitical objectives is central: as argued by Babić, Dixon, and Liu ( 2022 : 3), the new global economic order “is becoming more unwieldy, complex, and antagonistic. Since 2016 , we observe an advancing disintegration of the relatively stable phase of neoliberal globalization that governed the global political economy since the early 1990s”, while “different from earlier rounds of global rivalries, today’s battles for supremacy and hegemony will not have a mainly geopolitical, but much more a geoeconomic character”. One of the major economic instruments used by states are subsidies. A World Bank ( 2023 ) study on the distortive subsidies and their impact on global trade shows that since 2008, we have seen the rise of subsidies as the most frequently used trade policy instrument, surpassing both tariff and non-tariff measures. This fact suggests a rise of state involvement in the economy that goes beyond “slowbalization”. The study also emphasizes that the three largest economic actors - the US, the EU, and China - account for 75% of the analyzed subsidies, while the largest portion of the subsidy programs (25%) is dedicated to manufacturing. This further highlights the geopolitical aspects of the transformation and their deeper systemic nature. Our analysis of the rise in the use of subsidies mostly builds on the neo-mercantilist explanation. We perceive the more active use of subsidies to be a part of a broader trend of strengthening the state’s role in the economy and of a shift away from the laissez-faire type of thinking to one in which states’ use of economic instruments in pursuit of geopolitical objectives is becoming increasingly legitimate. This in turn legitimizes the use of industrial policy, a primary example of state economic intervention, of which subsidies are one of the most important instruments. Adopting the neo-mercantilist explanation allows us to frame the rise in the use of subsidies and the implications of this trend for the neoliberal regime, represented here by the WTO’s SCM Agreement. Furthermore, understanding the interplay of re-emerging industrial policy and WTO’s regulatory framework on the use of subsidies can cast more light on the broader structural conflicts that will arise between increasingly interventionist states and laissez-faire international economic institutions. 3. New industrial policy and the rise of subsidies Industrial policy plays a crucial role in the returning state economic interventionism as one of the clearest manifestations of a strengthening role of the state, which some scholars argue should actively shape and create the markets (Mazzucato 2015 , 2016 ). At the same time, the rise of a more active industrial policy, for example in industrial policy programs of large economies such as the US Inflation Reduction Act, the European Chips Act, and China’s Made in China 2025, represents a challenge to the current status quo and a potentially contribute to further fragmentation of the laissez-faire-based global economic system (Aiyar et al. 2023 : 10–11). In our understanding, industrial policy is defined by two main elements: first, production in some sectors is perceived by the state as more desirable than in others, and second, the state makes an active effort to nudge the production structure in this direction (Terzi, Singh, and Sherwood 2022: 8). Such framing of industrial policy, as well as the open use of the term, is a relatively recent phenomenon. While a certain level of government involvement in the economy has always been present, the concept of industrial policy itself has been rather controversial since the 1980s. Rodrik ( 2008 ) dubs this paradox the why versus how of industrial policy, suggesting that (despite the actual policy practice) the intellectual debate had a tendency to revolve more around the dispute of whether industrial policy should be used at all, rather than in what ways. Limited industrial policy (although often under different names, such as innovation policy) was permitted and justified on the grounds of fixing market failures ( Lall 2004 ; Glykou and Pitelis 2011 ), with one of the most prevalent areas of state intervention being support for science and innovation (Cohen 2006 ; Riess and Välilä 2006; Pack and Saggi 2006). The resulting industrial policy strategies of the 1990s and 2000s adopted broad, horizontal policy measures ( Lall 2004 ; Riess and Välilä 2006), deliberately avoiding more selective and interventionist policy instruments. The “horizontal” industrial policy instruments were mostly broad enough not to come in conflict with the WTO framework. In the 2000s and decisively after 2010 we however see a shift towards the use of more active industrial policy (Wade 2012 ; Mazzucato 2015 ; Chang and Andreoni 2020b ; Aiginger and Rodrik 2020). This active wielding of economic power by states is in line with the argument made by Babić, Dixon, and Liu ( 2022 ), according to whom the new global rivalries and battles for hegemony will have a distinctly (geo)economic character. This supports the argument that the new industrial policy is not a fleeting phenomenon, but a new constant in the global economic system affected by the rising securitization in economic thinking. More active state interventions also have a higher probability of coming into conflict with international organizations of the neoliberal era, an occurrence that was mostly absent in the past due to states’ self-imposed restraint on using more active industrial policy. Subsidies play a prominent role in the industrial policy toolbox. Naudé ( 2010 ) is one of the few scholars who specifically address the topic of industrial policy instruments, providing an extensive list of industrial policy domains and instruments. These span from very wide measures, such as monetary and exchange rate policies or general counter-cyclical fiscal policy, to more selective instruments, such as tariffs and quotas, the use of state-owned enterprises, as well as subsidies and governmental procurement. Instruments listed in the latter group require not only more active state involvement in the economy but also a more selective approach which requires the state to allocate resources specifically to preferred sectors, technologies, regions, etc. This distinguishes the new industrial policy from the previous horizontal approach, in which states favored broader, less selective measures. The rise in the use of subsidies in the recent two decades is examined by the World Bank ( 2023 ). The report presents a comprehensive overview of the use of the instrument and arrives at three main conclusions. First, the use of subsidies has risen substantially since the 2008 financial crisis (as illustrated by FIGURE 1 ) and significantly surpassed the use of other trade measures (FIGURE 2 ). Second, a majority of the subsidy programs originated in the global economic centers, with the US, the EU, and China in the decisive lead (FIGURE 3 ). Third, manufacturing was the most subsidized sector, representing 25% of total subsidies (also shown in FIGURE 3 ). While the World Bank study does not approach subsidies explicitly as an instrument of industrial policy, it argues that over 20% of the studied subsidy programs appear to have a sectoral objective (p. 11), covering general sectoral financial support for the acquisition of capital goods, materials, and business operations, and may be used in pursuit of industrial policy. A second major category consists of incentives that help generate or transfer technology, again suggesting a more selective use of subsidies. A similar picture arises from a closer analysis of the industrial policy programs of the three largest subsidy users: the US, the EU, and China. The increasing reliance on subsidies is present in both the European and US programs of support for semiconductor production. Both the European Chips Act and the CHIPS for America Act predominantly rely on subsidies as an instrument, as opposed to public procurement, TRIMs, or trade restrictions. They respectively promise to dedicate 43 billion euros and 52 billion USD (Burris, Stettner, and Valle-Gutierrez 2022; European Commission 2024 ) to the support of semiconductor manufacturing. These initiatives can be seen as “flagship” EU and US industrial policy programs in two distinct senses: first, they are respectively the largest European and US industrial policy programs for a single industry in terms of funding (Badlam et al. 2022 ; Burris, Stettner, and Valle-Gutierrez 2022; Timmers 2022 ). Second, their clear-cut and specific goals expressed in terms of production and market share targets, as well as in decreasing dependence on imports, suggest that there are distinct state objectives behind these programs (White House 2022 ; European Commission 2024 ). Therefore, the semiconductor programs represent both a quantitative and qualitative shift in the practice of industrial policy by Western countries, in the direction of more public spending and more selective state objectives. Meanwhile, in China, industrial policy is deeply embedded in the economic model itself. Most banks and many major enterprises are partially or wholly state-owned, and even technically private firms must remain receptive to public initiatives (Terzi, Singh, and Sherwood 2022). This structure grants the party-state extensive control, enabling it to support selected firms and industries by influencing purchases, prices, and credit allocation. The best available empirical analysis, conducted by the Center for Strategic and International Studies, estimates that China spends more than twice the share of its GDP on industrial policies as South Korea, the second most intensive user, and three times the absolute amount of the United States, the second-largest spender overall (DiPippo et al. 2022 ). Naughton ( 2021 ) notes that China reintroduced national-level industrial policy in 2006 after previously implementing it at the regional level. Since then, it has expanded significantly in both ambition and scale, with a particular focus on semiconductors. Indeed, some scholars argue that China’s industrial policy resurgence has driven advanced economies to revive their own interventionist approaches (Terzi, Singh, and Sherwood 2022; Goldwyn and Clabough 2023). 4. The WTO’s regime for industrial subsidies The regulation of industrial policy, a broad concept encompassing diverse instruments, is spread across multiple WTO agreements. Our article focuses on subsidies and the SCM Agreement that governs them, based on the reasoning outlined in the previous section: namely that subsidies are used at a growing pace and currently may represent the most significant instrument of the renewed industrial policy agenda. The SCM Agreement has already been reviewed and summarized in many existing sources (Akyüz, Chang, and Kozul-Wright 1998; Bora, Lloyd, and Pengestu 2000; Shadlen 2005 ; Ayala and Gallagher 2005; Akyüz 2010 ; Hoekman and Kostecki 2013). In this section, we briefly contextualize the SCM Agreement within the system of WTO law and summarize its most consequential rules from the point of view of the new industrial policy. The SCM Agreement builds on the earlier, voluntary Subsidies Code negotiated during the Tokyo Round and, like its predecessor, aims to clarify and operationalize Article XVI (on subsidies as such) and Article VI (on countervailing duties) of the GATT. The original GATT provisions, in place since 1947, treated subsidies largely as a matter of soft law, offering recommendations rather than binding obligations, with the exception of a notification requirement that member states have historically followed only inconsistently (Hoekman and Kostecki 2013: 74). The creation of the WTO in 1995, along with the adoption of the SCM Agreement, introduced several systemic changes to the global subsidies regime that merit attention. First, subsidy rules became generally binding for all members as part of the WTO’s single undertaking. Second, GATT has remained applicable to subsidies as a lex generalis , meaning it applies where the SCM Agreement does not offer more specific provisions. For instance, subsidies may violate GATT’s national treatment obligation if they result in more favorable treatment of domestic over imported goods. At the same time, WTO law permits governments to limit subsidy programs to domestic recipients. Because the SCM Agreement complements the GATT, it applies only to trade in goods and thus excludes subsidies related to services or incentives for foreign direct investment. Although it formally covers agricultural subsidies, the more permissive Agreement on Agriculture takes precedence in that area as a lex specialis . Finally, the WTO institutionalized the adjudication of subsidy-related disputes by placing them under the jurisdiction of the Dispute Settlement Body. The SCM Agreement begins with a definition of a subsidy in Article 1. It defines a subsidy as any measure involving government expenditure that confers a benefit to the recipient. This may take the form of a direct transfer of funds (such as a grant, loan, or equity infusion), the foregoing of government revenue (such as a tax break), the provision of goods or services by the government, or support provided indirectly through a non-state entity (such as a state-owned enterprise acting on behalf of the government). This broad definition encompasses multiple instruments included in Naudé's (2010) classification of industrial policy instruments. As such, the SCM Agreement serves as the central legal framework for the global regulation of industrial subsidies. At the core of the SCM Agreement is the distinction between specific and non-specific subsidies. Non-specific subsidies (defined in Article 2.1(b) and otherwise by omission) refer to neutral, broad-based, non-discriminatory measures that are not targeted at particular firms or industries. They are generally available across the economy and typically allocated based on objective, consistently applied eligibility criteria. Under the SCM Agreement, such subsidies are not subject to any limitations and cannot be challenged before the WTO’s Dispute Settlement Body. This effectively permits a range of non-selective industrial policy measures, such as horizontal support for research and development, which were common in developed countries during the 1990s and 2000s and are unlikely to distort international trade. Specific subsidies, as defined in the remainder of Article 2, are those explicitly or implicitly limited to particular enterprises or industries, making them sectoral in nature. These subsidies are often aimed at supporting national champions or fostering the development of infant industries. As a result, specific subsidies are closely aligned with the new, more selective industrial policy. Due to their targeted nature, specific subsidies can distort trade, which is likely why their use is subject to the SCM Agreement’s restrictions. The Agreement imposes the strictest limitations on subsidies that directly influence trade, prohibiting them outright regardless of their economic impact. Article 3 defines prohibited subsidies as those contingent on export performance (export subsidies) or on the use of domestic goods instead of imports (import-substitution subsidies). Because these subsidies are prohibited, a state challenging them in a dispute need only demonstrate the existence of the subsidy and its export or import-substitution nature. Once proven, the Dispute Settlement Body (DSB) can order the offending state to repeal the subsidy, without having to establish that it, in fact, distorts trade. What remains is the intermediary category of actionable subsidies – subsidies that are specific but not contingent on increasing exports or limiting imports. Notably, this is a vast area, encompassing all forms of support to specific economic sectors or individual national champions that are not tied to trade-related performance requirements. In this sense, it arguably includes the bulk of selective subsidies introduced with the rise of new industrial policy, such as key initiatives in the EU, the United States, and China discussed in the previous section. Actionable subsidies are a priori allowed unless they cause “adverse effects” to other WTO member states. This implies that in disputes concerning actionable subsidies, the complaining member has to show not only that a specific subsidy exists and that it confers a benefit to the enterprises or industries of the subsidizing country, but also that the subsidy has concrete negative effects on the complaining member state. This both places an extra burden of proof on the complainant but also changes the status of the subsidies in a more nuanced way. Whereas prohibited subsidies are outlawed ex-ante based on the agreement itself, actionable subsidies are in principle permitted, and their use can only be restricted in a specific case by a decision of the DSB. This arrangement therefore creates flexibility for member states, who can use actionable subsidies without breaching substantive WTO law until someone successfully sues them. Hypothetically, if no country initiates a dispute, all actionable subsidies will remain in compliance with the SCM Agreement. Besides launching disputes at the WTO, member states can also counter specific subsidies of other members by imposing countervailing duties, which are special tariffs imposed on subsidized products. The rules for imposition of countervailing duties, both in terms of substantive and procedural law, are covered in great depth in the SCM Agreement’s Articles 10–24. If one member state imposes countervailing duties, the allegedly subsidizing state may respond by launching a dispute at the WTO and claiming that the duties were imposed in contravention of the rules set out by the SCM Agreement. Overall, any member facing perceived injury to its domestic industries can therefore choose whether to attempt to sue the subsidizing state via the WTO’s dispute settlement system to force it to change its policies, or whether to impose countervailing duties on the subsidized goods and wait if the other state launches a dispute against these countervailing duties. The advantage of the first option is that it targets the subsidy as such, which can also affect the ability of the aggrieved state to export its products to the subsidizing state itself, or into third countries, whereas countervailing duties only protect its own domestic market. The disadvantage is the necessity to cope with the burden of proof. 5. WTO Disputes Involving Prohibited and Actionable Subsidies 5.1. Dispute Selection and Analytical Framework To better understand the dynamics of the WTO regime for subsidies, we compiled a database of all WTO dispute settlement cases since the organization’s establishment in 1995 in which the use of subsidies by member states was examined under the SCM Agreement. The database tracks how frequently subsidies have been contested, the average duration of disputes, and the rate at which subsidizing states successfully defended their measures as legitimate. The findings indicate that even when the WTO possessed a fully functional dispute settlement system and countries were generally more willing to adhere to its rules under the neoliberal paradigm, enforcing the SCM Agreement was legally complex, time-consuming, and inefficient, in particular for actionable subsidies. As a result, member states largely refrained from initiating disputes concerning their use. Our database includes 140 disputes launched under the SCM Agreement since the WTO’s establishment, which we present in three thematically distinct categories: disputes involving prohibited subsidies, actionable subsidies, and countervailing duties. The first two categories consist of cases in which member states challenged the use of specific subsidies by other members, typically their trading partners. While WTO procedures—such as requests for consultations and panel proceedings—formally distinguish between prohibited and actionable subsidies as defined in the SCM Agreement, it is not uncommon for complainants to allege the simultaneous use of both types. Of the 140 cases, 19 involved claims concerning both prohibited and actionable subsidies. These “dual” cases are analyzed in both relevant categories. Disputes involving countervailing subsidies, launched by the subsidizing state itself, are completely distinct from the other two categories and are treated as such. Another reason why subsidy disputes resist neat categorization is the common practice whereby complainant states invoke multiple WTO agreements within a single request for consultations or panel proceedings. Cases concerning prohibited and actionable subsidies frequently also involve claims under the GATT, the Agreement on Agriculture, or the TRIMs Agreement. In compiling our database, we have included all such disputes but limited our analysis strictly to those aspects of each case that pertain to the SCM Agreement, excluding rulings based solely on other legal instruments. The same approach was applied to disputes over countervailing duties, which often also raise claims concerning anti-dumping duties, as both types of trade remedies are frequently imposed concurrently on the same products. Of the 140 disputes included in the database, 45 did not proceed beyond the consultations stage; in 4 cases, the request for a panel was withdrawn; in 6 cases, the panel was never established or failed to issue a ruling for other reasons; 8 disputes were resolved through a mutually agreed solution; 13 were decided solely on the basis of agreements other than the SCM Agreement; and in 6 cases, no ruling had been issued at the time of writing. The remaining 58 cases resulted in at least a panel decision on the merits of the case under the SCM Agreement, and these have been subjected to further analysis. To that end, we have traced the outcomes of these 58 disputes through the successive stages of the proceedings: (1) the panel report; (2) the Appellate Body decision; (3) compliance proceedings (normally the report of a compliance panel, and, where applicable, the final decision following any subsequent appeal); and (4) the remedy decision. To present the results as clearly as possible, we present the disputes from the perspective of the alleged user of subsidies: in cases involving prohibited and/or actionable subsidies, this corresponds to the respondent, while in cases concerning countervailing duties, it corresponds to the complainant. The complexity of the WTO dispute settlement process makes it difficult to classify rulings in a straightforward manner as either successful or unsuccessful for any party, as most disputes involve multiple distinct claims. This often results in outcomes where some elements of a complaint are upheld while others are dismissed. To approximate the success rate of countries in defending their use of specific subsidies, we have categorized decisions at each stage of the proceedings into three outcomes: full success , partial success , and complete failure , from the perspective of the subsidizing state. “Full success” at the panel stage refers to instances where the panel ruled entirely in favor of the subsidizing state on all claims alleging violations of the SCM Agreement. In this context, it is not relevant whether the panel accepted all of the subsidizing state’s legal arguments, but only whether it ruled in its favor on all claims of a violation. Appellate Body proceedings introduce additional complexity, as both parties may appeal different aspects of the panel’s ruling. For the purposes of this analysis, a decision is classified as a “full success” only if the subsidizing state prevails on all contested points, regardless of which party initiated the appeal. In compliance proceedings, success or failure is determined by the compliance panel’s assessment of whether the respondent has fulfilled its obligations following the final ruling of the panel or Appellate Body. In remedy proceedings, success is defined by whether the Dispute Settlement Body accepts or rejects the countermeasures proposed by the complainant state in response to alleged non-compliance, again evaluated from the perspective of the subsidizing state. Finally, we include a category of “overall outcome,” which captures the ultimate result of the entire dispute. A case is considered a full success only if the subsidizing state prevails at every stage and on every claim. As such, full success is less likely in complex disputes involving multiple claims, which usually end in partial success for both parties and are difficult to summarize unambiguously. 5.2. Disputes on prohibited subsidies Table 1 Disputes concerning prohibited subsidies Disputes concerning prohibited subsidies Panel report Appellate decision Compliance decision Remedy decision Overall outcome Full success : 4/21 4/13 1/8 0/6 6/18 Partial success : 9/21 4/13 3/8 2/6 8/18 Complete failure : 8/21 5/13 4/8 4/6 4/18 Source: Own compilation It is immediately clear from Table 1 that the results of disputes are highly mixed, with almost one half resulting in a partial success for both the user of subsidies and its opponent and one third resulting with the country accused of using prohibited subsidies successfully defending its policies as legitimate. We judged the overall outcome only for concluded cases and omitted ongoing ones, which created a seeming discrepancy between the number of cases at the panel report stage and the overall outcome stage. In the case of prohibited subsidies, we have thus omitted three technically ongoing cases in which the subsidizing state (India in two cases and Indonesia in one case) has appealed “into the void” to the currently non-functioning Appellate Body. Perhaps more illustrative is the relatively high number of disputes concerning prohibited subsidies, which underscores both the perceived importance of the SCM Agreement’s disciplines on export- and import-substituting subsidies and the willingness of member states to seek their enforcement. As of the time of writing, such subsidies had been challenged in 68 out of the 633 disputes brought since the WTO’s establishment, representing 10.7% of all cases. While the frequency of disputes has declined somewhat over time – with 28 initiated between 1995 and 2004, 24 between 2005 and 2014, and 16 between 2015 and 2024 – this record suggests that the SCM Agreement remains a viable framework in the area of prohibited subsidies. Member states expect compliance with its core obligations and are prepared to pursue formal dispute settlement when violations are perceived. As we shall shortly see, this stands in sharp contrast to the relatively underutilized provisions on actionable subsidies. We may also note that litigation at the WTO is time-consuming: on average, the process from the initiation of consultations to the issuance of a final decision in disputes involving prohibited subsidies lasted 59 months. This figure is skewed by the two behemoth cases, DS316 (Airbus) and DS353 (Boeing). It is therefore more appropriate to consider the median duration, which stands at 38 months. In other words, it typically takes over three years for a country to obtain a ruling requiring another member to eliminate its prohibited subsidies. In complex cases, such as the Airbus dispute – which remains unresolved despite being initiated in 2004 – the process can take considerably longer. Overall, we can say that the WTO’s prohibition of export and import-substituting subsidies is enforced with a reasonable degree of frequency and success through dispute settlement. As we will see, in the realm of actionable subsidies, the willingness of states to enforce the disciplines of the SCM Agreement appears to be largely absent. 5. 3. Disputes on actionable subsidies Table 2 Disputes concerning actionable subsidies Disputes concerning actionable subsidies Panel report Appellate decision Compliance decision Remedy decision Overall outcome Full success : 3/10 - - - 3/10 Partial success : 2/10 2/3 3/3 - 3/10 Complete failure : 5/10 1/3 - 3/3 4/10 Source: Own compilation As can be seen in Table 2 , disputes concerning actionable subsidies are far less common than those involving prohibited subsidies. During the 30 years of the WTO’s existence, only 10 disputes over actionable subsidies resulted in a final decision by the Dispute Settlement Body. In total, including cases that did not lead to a final ruling or were decided under agreements other than the SCM Agreement, 29 such disputes have been initiated since 1995 – amounting to little less than one per year and less than half the number of cases concerning prohibited subsidies. In terms of outcomes, success appears to be roughly balanced between subsidizing states and complainants. However, both the number of cases presented in the table and the observed rate of loss for subsidizing states are somewhat inflated by what was effectively a single dispute divided into four separate cases. In 1996, the European Communities, the United States, and Japan initiated consultations with Indonesia over its program of support for national car production, which involved tax and tariff exemptions contingent on local content. As Japan requested consultations on two separate occasions, this resulted in the launching of four disputes (DS54, DS55, DS59, and DS64), all of which were ultimately resolved by a single panel that ruled entirely against Indonesia. Consequently, there has been only one instance in the history of the WTO where the Dispute Settlement Body issued a full ruling against a subsidizing state based on the actionable subsidy provisions of the SCM Agreement. Another case – concerning US agricultural subsidies for cotton – resulted in an almost complete defeat for the US, although it is classified as a “partial success” in our database due to the mixed outcome of the compliance panel’s findings. Even so, two clear losses for subsidizing states under the actionable subsidy rules remain remarkably few. Moreover, disputes that focus exclusively on actionable subsidies are exceedingly rare. Over the entire history of the WTO, there has been only one case (DS71) launched solely on the basis of the SCM Agreement’s provisions on actionable subsidies, which ended at the consultation stage. All other 28 disputes launched to date have also involved either prohibited subsidies, other WTO agreements such as GATT, the TRIMs Agreement, or the Agreement on Agriculture, or a combination thereof. This strongly suggests that member states do not consider it worthwhile to pursue enforcement of the actionable subsidy provisions unless they also perceive a simultaneous violation of another legal commitment by the subsidizing state. In other words, states do not initiate disputes against foreign subsidies unless these are viewed as discriminatory: either because they are tied to export promotion or import substitution (and thus prohibited), or as constituting a breach of the national treatment principle under GATT or other WTO agreements. The long-standing reluctance of states to initiate disputes concerning actionable subsidies can be attributed to several factors identified in the literature (see for example Hoekman and Kostecki 2013: 227; Bown, 2023). First, the dispute settlement process imposes a significant burden of proof on the complaining party. In addition to demonstrating the existence of specific subsidies granted by the respondent state, the complainant must also establish the presence of adverse effects – a challenging evidentiary requirement that does not apply in cases involving prohibited subsidies. This requirement makes disputes over actionable subsidies particularly data-intensive and procedurally demanding, as emphasized by Bown (2023). According to his analysis, the time and resources required to gather sufficient evidence may render the dispute effectively useless: by the time a final ruling is issued (often following a lengthy panel and Appellate Body process), the subsidizing country’s exports may already have captured the relevant market share. It is good to note in this context that there can be retrospective penalties imposed on the subsidizing state under WTO law – the point is return to compliance, not punishment. In this sense, the system may fail to offer timely or effective remedies for affected industries, further discouraging members from pursuing such cases. Second, respondent states have procedural instruments at their disposal that allow them to obstruct or delay proceedings if they choose to do so. The Airbus and Boeing disputes in particular highlight how states can exploit weaknesses in WTO procedural law and the organization's limited enforcement capacity to prolong cases indefinitely. This can be done through repeated initiation of new rounds of appeals, and through effectively refusing to comply with unfavorable rulings by delaying implementation or only addressing minor aspects of the decision. In the Airbus dispute, for example, the EU was found (first by the panel, then by the Appellate Body, and later through several compliance rulings) to have maintained various forms of support for Airbus that constituted prohibited or actionable subsidies causing adverse effects. Nonetheless, the EU never withdrew the bulk of these measures. Instead, it consistently claimed full compliance and continued to appeal unfavorable findings whenever possible. When it could not appeal further, it waited for the United States to initiate a new round of proceedings. Since 2019, such stalling tactics have been further facilitated by the ability to "appeal into the void" – that is, to block the continuation of the case by appealing rulings to a non-functioning Appellate Body. This tactic has been employed in subsidy disputes by the United States (DS523, DS533, DS539), India (DS580, DS581), and Indonesia (DS592). These complications contribute significantly to the lengthy duration of actionable subsidies cases. On average, a concluded dispute involving actionable subsidies took 76 months, or over six years, from start to finish. The median duration was 34 months or little under three years. The likelihood that disputes will become highly drawn out and may ultimately fail to compel the subsidizing state to change its policies in any meaningful way can discourage countries from initiating cases under the actionable subsidy provisions in the first place. The third reason for states’ reluctance to initiate disputes stems from the fact that launching a dispute may trigger retaliatory proceedings by the opposing party. The Airbus and Boeing cases, along with a series of disputes between Canada and Brazil concerning subsidies in the aircraft industry, illustrate how a respondent state may retaliate by initiating proceedings of its own, resulting in tit-for-tat litigation. Moreover, since actionable subsidies are in principle permitted and widely used by both developed and developing countries, nearly every prospective complainant is also a potential respondent. This creates a situation of mutual deterrence, where countries may be reluctant to initiate disputes out of concern that they themselves could soon be targeted. This dynamic has been described as a fear of “casting the first stone in a glass house” (Hoekman and Kostecki 2013: 227). As more states adopt subsidy practices, the reluctance to initiate disputes is expected to grow, since the risk of retaliation becomes even greater in a world where such policies are ubiquitous. Furthermore, as Bown (2023) points out, the necessary evidence often must be obtained from private firms, which may have commercial interests in the respondent state. These firms may be unwilling to cooperate, fearing possible retaliation against their business operations in the sued country. Finally, Bown also notes the existence of a free-rider problem: because subsidies often generate adverse effects for multiple countries, no single state has a strong incentive to incur the costs of lengthy litigation. Even if the dispute succeeds, the resulting benefits – such as the withdrawal of the subsidy – are likely to be shared among all affected trading partners, thus diluting the incentive for any one state to act. When considering that actionable subsidies are not inherently prohibited and are rarely the subject of complaints, it becomes clear that they are, in practice, largely permitted and tolerated within the WTO framework. Even at the height of the neoliberal era following the WTO's creation, this flexibility was evident. The resurgence of interventionist subsidies does not fundamentally undermine this pre-existing regime; rather, it reflects the enduring flexibility of the system, which the member countries increasingly leverage. 5. 4. Disputes on countervailing duties Table 3 Disputes concerning countervailing duties Disputes concerning countervailing duties Panel report Appellate decision Compliance decision Remedy decision Overall outcome Full success : 6/33 5/18 5/10 0/3 3/26 Partial success : 21/33 11/18 5/10 3/3 16/26 Complete failure : 6/33 2/18 0/10 0/3 7/26 Source: Own compilation Disputes over countervailing duties (Table 3 ) are among the most frequent cases concerning subsidies within the WTO. A total of 33 such disputes reached at least the panel level, with 26 concluding with a final decision. When considering disputes that did not result in a final ruling or were decided solely under the Anti-Dumping Agreement, the number of countervailing duty disputes rises to 62. Notably, the average duration of these proceedings is 45 months (just under four years), with the median length at 36 months (approximately three years). This suggests that countervailing duty cases tend to be shorter than those concerning other types of subsidies. The distribution between full success and failure is relatively even. Given that many disputes involve multiple alleged violations levied against the respondents in a hit-and-miss fashion, it is unsurprising that most cases fall into the "partial success" category. While only three cases resulted in a complete and unambiguous victory for the subsidizing state (the complainant), the data nonetheless indicate that the WTO’s dispute settlement system provides a viable mechanism for defending against foreign countervailing duties. This dynamic reinforces the position of states using subsidies, particularly in industries subject to international competition. In light of the resurgence of more interventionist industrial policies, countervailing duties are likely to become an increasingly important instrument in the trade remedy arsenal. These duties serve a defensive purpose and are considerably less intrusive than litigation targeting prohibited or actionable subsidies, which seeks to compel the subsidizing state to alter its domestic policies. As such, overseeing the use of countervailing duties, which are rooted in the GATT itself and therefore pre-date binding disciplines on subsidies themselves, is a goal in line with the WTO’s evolving role. If the organization can maintain a degree of order in this area, it will continue to play a crucial role in balancing the objective of defending global free trade with the reality of states pursuing more active industrial policy, therefore accommodating the tension that is likely to intensify beyond what we have seen during the GATT/WTO era so far. 6. The permissiveness of the SCM Agreement and implications for the future of the WTO The WTO faces a gradually deepening crisis. Following the success of the Uruguay Round in the late 1980s and early 1990s, global trade integration has largely stalled, most notably due to the failure of the Doha Round, which still remains unresolved. This can be presented as the first stage of the crisis, in which the WTO failed to perform its role as the main facilitator of economic liberalization. This stagnation has also affected industrial subsidies: the SCM Agreement, established at the WTO's establishment in 1995 based on the Tokyo Round-era Subsidies Code, has never been enhanced or expanded through further negotiations. Articles on non-actionable subsidies expired in 2000, and a 2017 initiative by the European Union and Japan to reform the Agreement and extend the definition of prohibited subsidies failed to gain traction (Howse, 2020). For a time, the WTO was still able to uphold its second task of a defender of the status quo by presiding over the previously crafted agreements and deciding disputes. However, even this more modest and stagnant role was dealt a significant blow under the first Trump administration, which disabled the proper functioning of the DSB by blocking the appointment of judges into its Appellate Body (Howse 2020). As a result, the organization has been unable to fully resolve disputes arising from existing agreements, including the SCM Agreement. The progressing decline of the WTO is often described as “gridlock”, a term originally coined by Hale, Held, and Young ( 2013 ) to describe the breakdown in international cooperation over challenges of transnational importance. In a follow-up article, Hale and Held (2017) describe a downward spiral in which the dysfunction of global institutions erodes their legitimacy, triggering a backlash that further weakens them. Klasen ( 2017 ) specifically addresses the gridlock in the global trade regime, outlining the first stage of the WTO crisis by arguing that the trade liberalization ground to a standstill due to growing multipolarity in the trade negotiations, fragmentation of the trade negotiations between the global and regional levels, and the emergence of more complex transborder problems that trade negotiations must address. Further research on gridlock in the WTO then focuses on the second stage of the crisis, mainly on the collapse of the Appellate Body (Bahri 2019 ; Khan and Wu 2021). While the literature on gridlock offers valuable insights into the ongoing decline of the WTO in the context of rising economic nationalism, we argue that the WTO's regime on subsidies has always been relatively permissive, shallow, and difficult to enforce—particularly when it comes to actionable subsidies. The dispute database reveals that, even during the height of the WTO's influence in the 1990s and 2000s, it was still exceptionally challenging to identify and prove violations of the SCM Agreement, and that states largely refrained from initiating complaints regarding actionable subsidies, allowing them to remain as a available policy instrument. This has several implications. First, it highlights the fact that even in an era when the WTO’s dispute settlement system was functioning effectively and countries were generally more willing to adhere to its rules, the SCM Agreement was too permissive to meaningfully restrict the use of subsidies not directly contingent on limiting imports or promoting exports. What constrained subsidy use, in fact, was the consensus among leading economic powers to favor market mechanisms and avoid aggressive industrial policies that could disrupt markets, harm competitors, and create tensions between countries with competing firms. However, when this consensus was absent—such as in the case of the Airbus and Boeing disputes, which were seen as strategic by the EU and the US—the WTO was not only unable to enforce full compliance with its rulings but also failed to deliver a final and unequivocal decision within a reasonable timeframe. As the neoliberal consensus wanes and governments increasingly approach economic issues not through a depoliticized market lens but as a geopolitical competition for dominance in strategic industries, the weaknesses of global governance in the realm of subsidies are likely to become much more apparent. However, the weakness of the WTO’s subsidy regime can also be seen as a “virtue of last resort” of the organization. The relative permissiveness of the SCM Agreement allows countries to pursue interventionist policies without unambiguously violating their WTO commitments. This flexibility allows the WTO to maintain a degree of relevance in the climate of rising economic nationalism by avoiding direct confrontations with member states that might otherwise openly defy its rulings and thus risk further erosion of its authority. This distinction sets subsidies apart from another policy instrument that has also resurfaced in recent years: tariffs. The tariffs imposed by the Trump administration—primarily on China during his first term and on most countries during his second term—were enacted with apparent disregard for US WTO commitments, such as its tariff bindings and the most favored nation principle enshrined in the GATT. These measures attack the oldest and most deeply embedded component of global trade liberalization, which has been central to the GATT/WTO’s mission since its creation— non-discrimination and the removal of barriers to international trade with industrial goods. As such, they pose a far more immediate and direct threat to the WTO’s viability. Subsidies, on the other hand, represent a beyond-the-border issue into which the WTO regime only ever made tentative forays. Establishing a robust regime in this area would require a level of economic integration that has only been achieved within the European Union through its state aid rules, and which remained unfeasible at the global level even at the height of the neoliberal era (see Hoekman and Kostecki 2013: 219). Even after the introduction of the SCM Agreement in 1995, most interventionist subsidies were left in the ambiguous space of the actionable category rather than being outright prohibited or otherwise firmly limited. This approach placed the responsibility on states to either initiate disputes, which would, in turn, establish precedents for what is or is not acceptable, or to leave the issue dormant, thus allowing actionable subsidies to remain in a de facto tolerated grey zone. As we have shown, WTO member states have overwhelmingly opted for the latter, with only a handful of disputes launched since 1995. This pre-existing lack of strict rules mitigates the impact of the return of subsidies on the WTO’s credibility, as the permissiveness of its subsidy regime thus provides member countries with more policy space to pursue active industrial policy without explicitly coming into conflict with the multilateral trade system. As the global economy shifts toward more explicit state interventionism, the WTO regime on subsidies may be an example of a new modus operandi for the international organisation: one that accommodates active industrial policy while still remaining a relevant body for international cooperation, in the spirit of an emerging “’new’ new international economic order” envisioned by Chang ( 2021 ). This flexibility may help the WTO adjust to the shifting world order while preserving its core function of facilitating and upholding the removal of discriminatory on-the-border trade barriers, mainly tariffs, an area where most countries (with the notable exception of the US) still appear committed to adhering to WTO rules. Whether this coexistence proves sustainable will depend on the WTO’s ability to uphold the other two key features of the subsidies regime: the prohibition of openly discriminatory subsidy schemes and the conditional allowance for temporary countervailing duties. As our article has shown, both elements have been relatively well-enforced in the post-1995 period, and their continued survival is crucial for limiting the trade-distorting effects of industrial subsidies and maintaining a pathway for WTO-compliant trade remedies. Together, these two features can encourage states to pursue interventionist policies in a less provocative and beggar-thy-neighbor manner. They also provide a structured response to foreign subsidies that stops short of a full-scale reintroduction of tariffs. If the WTO can preserve this balance — tolerating a broad range of subsidies while acting against clearly discriminatory practices and allowing proportionate countermeasures — it may not only survive into the post-neoliberal era but help shape it into a more cooperative and less conflict-prone trade order. 7. Conclusion The article examines the ongoing transformation of the global economy, marked by the re-emergence of industrial policy, within the regulatory framework of the WTO, specifically the Agreement on Subsidies and Countervailing Measures (SCM Agreement). Specifically, it studied the extent to which the increasing use of subsidies violates countries’ WTO commitments, and to what extent it merely takes advantage of policy space that has always existed under the WTO rules but has not been fully utilized previously. Drawing on an analysis of a database of all WTO disputes invoking the SCM Agreement, it shows that the regime has historically been permissive—particularly toward subsidies not explicitly tied to trade performance—and has produced relatively few rulings against their use. It argues that the new industrial policy, while seemingly at odds with the ethos of liberal globalization, can operate within the existing WTO regulatory framework rather than in open defiance of it. Unlike in the case of the violation of WTO rules on tariffs, which are clear-cut and easily recognizable, the possibility of using actionable subsidies remains shrouded in ambiguity and it is rarely contested, allowing states to pursue active industrial policy while still engaging in some degree of cooperation within the WTO framework. In that regard, the ambiguity of the subsidies regime might not be a bug, but a feature — one that allows the global trading system to bend, rather than break, under the pressures of a transforming economic regime. This insight offers a more nuanced view of the WTO’s place in the emerging post-neoliberal order. Rather than seeing the WTO as either a bulwark of globalization or an obsolete relic, it may be more accurate to view it as a legacy institution being repurposed to coexist with new forms of state-led capitalism. Its core mission of regulating on-the-border barriers remains broadly respected by the vast majority of members, and its tolerance of industrial subsidies may facilitate a stable if looser, global trade regime that accommodates both economic nationalism and multilateral cooperation. Declarations FUNDING STATEMENT This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. 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Carnegie Endowment for International Peace. 2022. https://carnegieendowment.org/research/2022/11/after-the-chips-act-the-limits-of-reshoring-and-next-steps-for-us-semiconductor-policy?lang=en . Kennedy, Andrew B., and Darren J. Lim. 2018. ‘The Innovation Imperative: Technology and US–China Rivalry in the Twenty-First Century’. International Affairs 94 (3): 553–72. https://doi.org/10.1093/ia/iiy044 . Khan, Asif, and Ximei Wu. 2021. ‘Reforms for Culmination of the Deadlock in Appellate Body of WTO: An Agenda of Saving the Multilateral Trading System’. Journal of Humanities, Social and Management Sciences (JHSMS) 2 (1): 50–62. https://doi.org/10.47264/idea.jhsms/2.1.5 . Klasen, Andreas. 2017. ‘Trade: Gridlock and Resilience’. In Beyond Gridlock , edited by Thomas Hale and David Held. Newark: Polity Press. Kreps, Sarah, and Paul Timmers. 2022. ‘Bringing Economics Back into EU and U.S. Chips Policy | Brookings’. Brookings. 2022. https://www.brookings.edu/articles/bringing-economics-back-into-the-politics-of-the-eu-and-u-s-chips-acts-china-semiconductor-competition/ . Kumar Mishra, Ram, and M Karthik. 2020. ‘Understanding the US-China Trade War: Causes, Consequences and Economic Impact’. Global Trade and Customs Journal 15 (Issue 11/12): 580–91. https://doi.org/10.54648/GTCJ2020095 . Lall, Sanjaya. 2004. ‘Reinventing Industrial Strategy: The Role of Government Policy in Building Industrial Competitiveness’. Annals of Economics and Finance 14 (February). Li, Chunding, Chuantian He, and Chuangwei Lin. 2018. ‘Economic Impacts of the Possible China–US Trade War’. Emerging Markets Finance and Trade 54 (7): 1557–77. https://doi.org/10.1080/1540496X.2018.1446131 . Livesey, Finbarr. 2018. ‘Unpacking the Possibilities of Deglobalisation’. Cambridge Journal of Regions, Economy and Society 11 (1): 177–87. https://doi.org/10.1093/cjres/rsx030 . Mattoo, Aaditya, and Robert Staiger. 2019. ‘Trade Wars: What Do They Mean? Why Are They Happening Now? What Are the Costs?’ w25762. Cambridge, MA: National Bureau of Economic Research. https://doi.org/10.3386/w25762 . Mazzucato, Mariana. 2015. ‘Building the Entrepreneurial State: A New Framework for Envisioning and Evaluating a Mission-Oriented Public Sector’. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2544707 . ---. 2016. ‘From Market Fixing to Market-Creating: A New Framework for Innovation Policy’. Industry and Innovation 23 (2): 140–56. https://doi.org/10.1080/13662716.2016.1146124 . Meyer, Timothy. 2020. ‘Trade Law and Supply Chain Regulation in a Post-COVID-19 World’. American Journal of International Law 114 (4): 637–46. https://doi.org/10.1017/ajil.2020.64 . Naudé, Wim. 2010. Industrial Policy: Old and New Issues . Helsinki: WIDER. Naughton, Barry. 2021. The Rise of China’s Industrial Policy, 1978 to 2020 . Primera edición. México: Universidad Nacional Autónomica de México, Facultad de Economía. Nwoke, Uchechukwu. 2020. ‘Imposition of Trade Tariffs by the USA on China: Implications for the WTO and International Trade Law’. Journal of International Trade Law and Policy 19 (2): 69–84. https://doi.org/10.1108/JITLP-01-2019-0003 . O’Neil, Shannon K. 2021. ‘Protection without Protectionism: Getting Industrial Policy Right’. Foreign Affairs 100:150. Ornelas, Emanuel, and Laura Puccio. 2020. ‘Reopening Pandora’s Box in Search of a WTO-Compatible Industrial Policy? The Brazil–Taxation Dispute’. World Trade Review 19 (2): 249–66. https://doi.org/10.1017/S1474745620000099 . Pack, Howard, and Kamal Saggi. 2006. ‘Is There a Case for Industrial Policy? A Critical Survey’. The World Bank Research Observer 21 (2): 267–97. Poon, Jessie. 2024. ‘The Geoeconomics of Globalization 2.0’. Environment and Planning A: Economy and Space , August, 0308518X241269366. https://doi.org/10.1177/0308518X241269366 . Riess, Armin, and Timo Välilä. 2006. ‘Industrial Policy: A Tale of Innovators, Champions, and B52s’. European Investment Bank . Rodrik, D. 2014. ‘Green Industrial Policy’. Oxford Review of Economic Policy 30 (3): 469–91. https://doi.org/10.1093/oxrep/gru025 . Rodrik, Dani. 2008. ‘Normalizing Industrial Policy’. Shadlen, Kenneth C. 2005. ‘Exchanging Development for Market Access? Deep Integration and Industrial Policy under Multilateral and Regional-Bilateral Trade Agreements’. Review of International Political Economy 12 (5): 750–75. https://doi.org/10.1080/09692290500339685 . Singh, Harsha, and Rashmi Jose. 2016. ‘Industrial Policy and the WTO Rules-Based System’. E15 Expert Group on Reinvigorating Manufacturing: New Industrial Policy and the Trade System. http://industrialpolicy.us/resources/IndPolCaseForAndAgainst/Industrial%20Policy%20and%20the%20WTO%20Rules-Based%20System.pdf . Terzi, Alessio, Aneil Singh, and Monika Sherwood. 2022. ‘Industrial Policy for the 21st Century: Lessons from the Past’. European Commission. https://economy-finance.ec.europa.eu/publications/industrial-policy-21st-century-lessons-past_en . The Economist . 2019. ‘The Steam Has Gone out of Globalisation’, 2019. https://www.economist.com/leaders/2019/01/24/the-steam-has-gone-out-of-globalisation?utm_medium=cpc.adword.pd& utm_source=google&ppccampaignID=18151738051&ppcadID =&utm_campaign=a.22brand_pmax&utm_content=conversion.direct-response.anonymous&gad_source=1&gclid=Cj0KCQiAi_G 5BhDXARIsAN5SX7q0wQrMAlaWWF_dxVfa8FHfp1ggxRLfJO-WTpIefsUn34188CBHqI8aAow_EALw_wcB&gclsrc=aw.ds. Timmers, Paul. 2022. ‘How Europe Aims to Achieve Strategic Autonomy for Semiconductors’. Brookings Institution. Policy Commons. https://policycommons.net/artifacts/4140932/how-europe-aims-to-achieve-strategic-autonomy-for-semiconductors/ . Wade, Robert H. 2012. ‘Return of Industrial Policy?’ International Review of Applied Economics 26 (2): 223–39. https://doi.org/10.1080/02692171.2011.640312 . Walmsley, Terrie, and Peter Minor. 2020. ‘US Trade Actions Against China: A Supply Chain Perspective’. Foreign Trade Review 55 (3): 337–71. https://doi.org/10.1177/0015732520920465 . Wolfe, Robert. 2021. ‘Yours Is Bigger than Mine! Could an Index like the Producer Subsidy Equivalent Help in Understanding the Comparative Incidence of Industrial Subsidies?’ The World Economy 44 (2): 328–45. https://doi.org/10.1111/twec.13069 . World Bank. 2023. ‘Unfair Advantage: Distortive Subsidies and Their Effects on Global Trade’. Text/HTML. Equitable Growth, Finance and Institutions Insight Washington, D.C. : World Bank Group. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099062623130526530/P17047207d 942a01e0b07a091ffe0c1e9ac. Additional Declarations No competing interests reported. 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Introduction","content":"\u003cp\u003eThe global economy has entered a transformation era. Trends such as the slowdown of globalization (The Economist \u003cspan citationid=\"CR70\" class=\"CitationRef\"\u003e2019\u003c/span\u003e; Antr\u0026agrave;s \u003cspan citationid=\"CR8\" class=\"CitationRef\"\u003e2020\u003c/span\u003e; Dadush \u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e2022\u003c/span\u003e; Aiyar et al. \u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2023\u003c/span\u003e), securitization of economic matters due to rising geopolitical tensions (Livesey \u003cspan citationid=\"CR52\" class=\"CitationRef\"\u003e2018\u003c/span\u003e; Irwin \u003cspan citationid=\"CR41\" class=\"CitationRef\"\u003e2020\u003c/span\u003e; Babić, Dixon, and Liu \u003cspan citationid=\"CR10\" class=\"CitationRef\"\u003e2022\u003c/span\u003e), and a greater involvement of the state in the economy (Chang and Andreoni 2020a; Juh\u0026aacute;sz, Lane, and Rodrik 2024) add up to a complex shift in the global economy. This opens a number of new questions for the field of international political economy centered around the motivations of the changes in economic policy (see for example Kennedy and Lim \u003cspan citationid=\"CR45\" class=\"CitationRef\"\u003e2018\u003c/span\u003e; Mattoo and Staiger 2019; Ciuriak \u003cspan citationid=\"CR21\" class=\"CitationRef\"\u003e2019\u003c/span\u003e) and the economic impacts of the emerging economic nationalism (see for example Li, He, and Lin \u003cspan citationid=\"CR51\" class=\"CitationRef\"\u003e2018\u003c/span\u003e; Itakura \u003cspan citationid=\"CR42\" class=\"CitationRef\"\u003e2020\u003c/span\u003e; Kumar Mishra and Karthik 2020; Walmsley and Minor \u003cspan citationid=\"CR73\" class=\"CitationRef\"\u003e2020\u003c/span\u003e). Among the many aspects of the turn away from neoliberalism is its relation with global economic institutions created since 1945 with the general goal of fostering economic cooperation and openness (among the studies that examined this issue, see for example Hoekman and Nelson 2020; O\u0026rsquo;Neil \u003cspan citationid=\"CR60\" class=\"CitationRef\"\u003e2021\u003c/span\u003e; or Aiyar et al. \u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2023\u003c/span\u003e). The World Trade Organization (WTO) is among the most important of these organizations, as it was formed at the peak of the neoliberal era to oversee a set of international economic agreements intended to ensure a predictable global economic environment and to safeguard free trade, as well as to facilitate further liberalization. Its core mission can therefore be interpreted as preventing the return of precisely the type of protectionism and economic nationalism that is currently re-taking root across the world.\u003c/p\u003e \u003cp\u003eThe WTO has been severely weakened and has lost much of its credibility since the first Trump administration. Under the first Trump administration, the US disabled the functioning of its Appellate Body and thus hamstrung its crucial dispute settlement system by blocking the appointment of new judges (Bahri \u003cspan citationid=\"CR12\" class=\"CitationRef\"\u003e2019\u003c/span\u003e; Khan and Wu 2021). At the same time, the US also openly defied the WTO\u0026rsquo;s substantive rules by unilaterally imposing significant new tariffs, in violation of the most favored nation principle and US tariff bindings (Brewster \u003cspan citationid=\"CR15\" class=\"CitationRef\"\u003e2018\u003c/span\u003e). And while it is not yet possible to assess the long-term impacts of actions taken during the second Trump administration, there is little doubt of their destabilizing nature. Overall, these steps weaken the WTO as an institution and put into question the viability of its oldest and most central rules as a protector of free global trade. The problem of the inability of the WTO to prevent the Trump trade wars, and the incompatibility of the new rounds of US tariffs and retaliatory tariffs of China and other nations, have been studied by a number of scholars (Brewster \u003cspan citationid=\"CR15\" class=\"CitationRef\"\u003e2018\u003c/span\u003e; Adekola \u003cspan citationid=\"CR1\" class=\"CitationRef\"\u003e2019\u003c/span\u003e; Nwoke \u003cspan citationid=\"CR59\" class=\"CitationRef\"\u003e2020\u003c/span\u003e; Evenett \u003cspan citationid=\"CR29\" class=\"CitationRef\"\u003e2024\u003c/span\u003e: 202).\u003c/p\u003e \u003cp\u003eHowever, significantly less attention has been paid to another, more ambiguous trend that accompanies the transformation of the global economy: that is the return of the state as a more active economic actor, reflected especially in the return of industrial policy. The emerging literature on industrial policy has identified numerous, often interconnected reasons why the return of more active industrial policy takes place. These include facilitation of the green transition (Rodrik \u003cspan citationid=\"CR65\" class=\"CitationRef\"\u003e2014\u003c/span\u003e), mitigation of the impacts of the COVID-19 pandemic, and reduction of vulnerabilities in supply chains exposed by the pandemic (Meyer \u003cspan citationid=\"CR56\" class=\"CitationRef\"\u003e2020\u003c/span\u003e; Ferrannini et al. \u003cspan citationid=\"CR32\" class=\"CitationRef\"\u003e2021\u003c/span\u003e; Kannan and Feldgoise 2022; Bown \u003cspan citationid=\"CR14\" class=\"CitationRef\"\u003e2022\u003c/span\u003e), supplying Ukraine with armaments and dual-use products (Dullien and Hackenbroich 2022), or adjustment of market economies to the rise of China with its mixed economic model (Terzi, Singh, and Sherwood 2022; Goldwyn and Clabough 2023). While the US trade protectionism under both Trump administrations may prove to be a temporary phenomenon related to the idiosyncrasies of the MAGA movement, many other factors, such as the mitigation of climate change or geopolitical competition with China, appear to be more long-term, structural trends. The re-emergence of industrial policy is therefore shaping up to be a process deeply rooted in the return of the state as a more active economic actor (a sentiment expressed for example by Mazzucato \u003cspan citationid=\"CR55\" class=\"CitationRef\"\u003e2016\u003c/span\u003e).\u003c/p\u003e \u003cp\u003eThe interplay of re-emerging industrial policy and the existing regulatory framework of the WTO is a topic of major importance from the perspective of global economic governance. Our article explores the extent to which the emerging wave of industrial policy represents a departure from WTO commitments, and to what extent does it merely take advantage of policy space that has always existed under the WTO rules but had not been fully utilized previously. We study the return of industrial policy in the form of state subsidies, which have been by far the most commonly used type of trade intervention since 2009, thus overshadowing the use of tariffs (Evenett \u003cspan citationid=\"CR30\" class=\"CitationRef\"\u003e2019\u003c/span\u003e).\u003c/p\u003e \u003cp\u003eNevertheless, the WTO regime for subsidies, concentrated in the Agreement on Subsidies and Countervailing Duties (SCM Agreement) has been relatively under-studied to date and the existing literature is highly fragmented between political economy and international law research. There is a broad agreement that the SCM Agreement\u0026rsquo;s regime for subsidies is less restrictive and more difficult to enforce than the GATT regime for tariffs (Amsden and Hikino 2000; Hoekman and Kostecki 2013; Singh and Jose \u003cspan citationid=\"CR55\" class=\"CitationRef\"\u003e2016\u003c/span\u003e; Chang and Andreoni 2020a; Gulotty \u003cspan citationid=\"CR35\" class=\"CitationRef\"\u003e2022\u003c/span\u003e), and that there is a significant lack of transparency in reporting both the quantity and quality of industrial subsidies by the WTO member states (Wolfe \u003cspan citationid=\"CR74\" class=\"CitationRef\"\u003e2021\u003c/span\u003e; Evenett \u003cspan citationid=\"CR29\" class=\"CitationRef\"\u003e2024\u003c/span\u003e). However, the most glaring research gap is a more systematic study of the enforcement of the SCM Agreement: the existing literature is either based on an analysis of the text of the agreement itself, without taking enforcement into account (this is the case of most IPE literature dealing with the issue, such as for example Aky\u0026uuml;z \u003cspan citationid=\"CR6\" class=\"CitationRef\"\u003e2008\u003c/span\u003e or Chang and Andreoni \u003cspan citationid=\"CR19\" class=\"CitationRef\"\u003e2020b\u003c/span\u003e), or approaches the problem on a case-study basis (this is typical for the more technical research carried out by scholars of international trade law, such as Charnovitz and Fischer 2014; Ornelas and Puccio 2020; or Dhingra and Meyer 2021). We argue that a more systematic study of the enforcement of the SCM Agreement is crucial for our understanding of the impacts that the re-emergence of industrial policy has on the WTO.\u003c/p\u003e \u003cp\u003eIn order to address this research gap, we have assembled a database of all WTO disputes launched on the basis of the SCM Agreement since the WTO\u0026rsquo;s foundation in 1995 and studied the number of launched disputes, the lengths of proceedings, and the success rate of subsidizing states in defending their actions. Based on our data, we show that prior to the disabling of the Appellate Body, the WTO\u0026rsquo;s ban on prohibited subsidies (that is subsidies that seek to directly influence international trade by promoting exports or suppressing imports) had been relatively well-enforced with common disputes frequently ending in a decision against the subsidizing state. However, the rules for the category of actionable subsidies (that is subsidies not directly contingent on interfering with international trade, which are not outright prohibited by the SCM Agreement and can only be proclaimed as WTO-inconsistent on a case-by-case through dispute settlement) had always been enforced very sporadically, and mostly only in cases where their use was combined with another perceived violation of WTO rules. This suggests that the regime for the use of actionable subsidies is highly permissive, even when enforced by a fully functioning Dispute Settlement Body (DSB).\u003c/p\u003e \u003cp\u003eBased on these findings, we argue that the renewed use of targeted subsidies does not necessarily violate countries\u0026rsquo; WTO commitments and can to a large extent coexist with the WTO regime established at the height of the neoliberal era in 1995. The permissiveness of the WTO regime on subsidies may serve as an example of a new \u003cem\u003emodus operandi\u003c/em\u003e for the organization in the context of increasing state interventionism. The weakness of the WTO\u0026rsquo;s subsidy regime can also be seen as a \u0026ldquo;virtue of last resort\u0026rdquo;, as it allows member countries to practice more active industrial policy while still retaining the WTO as a relevant body for international cooperation.\u003c/p\u003e \u003cp\u003eThe rest of the article is organized as follows. In section \u003cspan refid=\"Sec2\" class=\"InternalRef\"\u003e2\u003c/span\u003e, we present the current state of debate on the transformation of the global economy, focusing on the argument that the global economy is experiencing a rise of economic nationalist thinking, which results in a greater role of the state in the economy. Subsequently in section \u003cspan refid=\"Sec3\" class=\"InternalRef\"\u003e3\u003c/span\u003e, we present evidence that industrial policy is making a return, focusing on industrial subsidies as one of its most important instruments. In section \u003cspan refid=\"Sec4\" class=\"InternalRef\"\u003e4\u003c/span\u003e, we overview the structure and most important provisions of the SCM Agreement and continue our analysis in section \u003cspan refid=\"Sec5\" class=\"InternalRef\"\u003e5\u003c/span\u003e by presenting our database of WTO disputes on subsidies. In section \u003cspan refid=\"Sec11\" class=\"InternalRef\"\u003e7\u003c/span\u003e, we discuss the implications of the weakness of the SCM Agreement in regulating the use of actionable subsidies in the context of their increasing use by states. Section 8 serves as the article\u0026rsquo;s conclusion.\u003c/p\u003e"},{"header":"2. Transformation of the global economy and the return of the state","content":"\u003cp\u003eThe global economy is in a state of transformation: from the Great Recession to the US-China trade war, and the pandemic-induced global supply chain crisis, the events of the last decade and a half are reshaping the global economic landscape, and gradually eroding the laissez-faire paradigm that has dominated the last four decades. What naturally follows is a widespread debate on the causes, extent, and implications of these changes, as well as their exact nature. The existing literature on the current transition trends takes two different stances: one is the \u0026ldquo;deglobalization\u0026rdquo; explanation, which sees the current developments mainly as a natural slowdown following the hyper-globalization era. The other is the \u0026ldquo;neo-mercantilist\u0026rdquo; explanation, according to which states increasingly intervene in the economy to achieve strategic and geopolitical objectives, marking a departure from the neoliberal era.\u003c/p\u003e \u003cp\u003eThe debate on deglobalization focuses mainly on the trade elements of global integration and its possible reverse. A generally accepted term is \u0026ldquo;slowbalization\u0026rdquo; (The Economist \u003cspan citationid=\"CR70\" class=\"CitationRef\"\u003e2019\u003c/span\u003e), which presents the argument that the slowdown of global trade integration which took place in the wake of the Great Recession was primarily a consequence of hyper-globalization in the 1990s and 2000s. An extensive debate takes place, in which some authors emphasize the \u0026ldquo;inevitability\u0026rdquo; of such a course of events and stress the continuing interconnectedness of the global economy (Antr\u0026agrave;s \u003cspan citationid=\"CR8\" class=\"CitationRef\"\u003e2020\u003c/span\u003e; Dadush \u003cspan citationid=\"CR24\" class=\"CitationRef\"\u003e2022\u003c/span\u003e), while others warn that more profound changes are taking place and the deglobalization process goes beyond mere restoring of balance (Livesey \u003cspan citationid=\"CR52\" class=\"CitationRef\"\u003e2018\u003c/span\u003e; Irwin \u003cspan citationid=\"CR41\" class=\"CitationRef\"\u003e2020\u003c/span\u003e). Aiyar et al. (\u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2023\u003c/span\u003e) present the current development as a risk of increasing economic fragmentation, which affects all aspects of the global economy from trade and monetary systems to technology diffusion, and cross-border labor and capital flows. As they claim, the world is experiencing a shift from the liberalization era (characterized by a gradual removal of trade barriers in large emerging market economies and the establishment of the WTO as an institution for overseeing the multilateral trade regime) to a \u0026ldquo;slowbalization\u0026rdquo; era and the plateauing of globalizing tendencies.\u003c/p\u003e \u003cp\u003eThe neo-mercantilist explanation perceives the current trends as deeper systemic changes in the role of the state in and towards the economy. It emphasizes the growing importance of security and geopolitics in influencing economic matters and state interference in the economy. The new term \u0026ldquo;geoeconomics\u0026rdquo; describes a country\u0026rsquo;s (primarily a major power\u0026rsquo;s) ability to \u0026ldquo;use their financial and economic strength to extract economic and political surplus from other countries around the world\u0026rdquo; (Clayton, Maggiori, and Schreger \u003cspan citationid=\"CR22\" class=\"CitationRef\"\u003e2023\u003c/span\u003e: 2). Under the dissolving neoliberal paradigm, the line between economic and political power becomes blurred, as the economy can now be legitimately used as a geopolitical tool in a world with increasing security risks (Poon \u003cspan citationid=\"CR63\" class=\"CitationRef\"\u003e2024\u003c/span\u003e). The role of the economic instruments in states\u0026rsquo; pursuit of geopolitical objectives is central: as argued by Babić, Dixon, and Liu (\u003cspan citationid=\"CR10\" class=\"CitationRef\"\u003e2022\u003c/span\u003e: 3), the new global economic order \u0026ldquo;is becoming more unwieldy, complex, and antagonistic. Since \u003cspan citationid=\"CR55\" class=\"CitationRef\"\u003e2016\u003c/span\u003e, we observe an advancing disintegration of the relatively stable phase of neoliberal globalization that governed the global political economy since the early 1990s\u0026rdquo;, while \u0026ldquo;different from earlier rounds of global rivalries, today\u0026rsquo;s battles for supremacy and hegemony will not have a mainly geopolitical, but much more a geoeconomic character\u0026rdquo;.\u003c/p\u003e \u003cp\u003eOne of the major economic instruments used by states are subsidies. A World Bank (\u003cspan citationid=\"CR75\" class=\"CitationRef\"\u003e2023\u003c/span\u003e) study on the distortive subsidies and their impact on global trade shows that since 2008, we have seen the rise of subsidies as the most frequently used trade policy instrument, surpassing both tariff and non-tariff measures. This fact suggests a rise of state involvement in the economy that goes beyond \u0026ldquo;slowbalization\u0026rdquo;. The study also emphasizes that the three largest economic actors - the US, the EU, and China - account for 75% of the analyzed subsidies, while the largest portion of the subsidy programs (25%) is dedicated to manufacturing. This further highlights the geopolitical aspects of the transformation and their deeper systemic nature.\u003c/p\u003e \u003cp\u003eOur analysis of the rise in the use of subsidies mostly builds on the neo-mercantilist explanation. We perceive the more active use of subsidies to be a part of a broader trend of strengthening the state\u0026rsquo;s role in the economy and of a shift away from the laissez-faire type of thinking to one in which states\u0026rsquo; use of economic instruments in pursuit of geopolitical objectives is becoming increasingly legitimate. This in turn legitimizes the use of industrial policy, a primary example of state economic intervention, of which subsidies are one of the most important instruments. Adopting the neo-mercantilist explanation allows us to frame the rise in the use of subsidies and the implications of this trend for the neoliberal regime, represented here by the WTO\u0026rsquo;s SCM Agreement. Furthermore, understanding the interplay of re-emerging industrial policy and WTO\u0026rsquo;s regulatory framework on the use of subsidies can cast more light on the broader structural conflicts that will arise between increasingly interventionist states and laissez-faire international economic institutions.\u003c/p\u003e"},{"header":"3. New industrial policy and the rise of subsidies","content":"\u003cp\u003eIndustrial policy plays a crucial role in the returning state economic interventionism as one of the clearest manifestations of a strengthening role of the state, which some scholars argue should actively shape and create the markets (Mazzucato \u003cspan citationid=\"CR54\" class=\"CitationRef\"\u003e2015\u003c/span\u003e, \u003cspan citationid=\"CR55\" class=\"CitationRef\"\u003e2016\u003c/span\u003e). At the same time, the rise of a more active industrial policy, for example in industrial policy programs of large economies such as the US Inflation Reduction Act, the European Chips Act, and China\u0026rsquo;s Made in China 2025, represents a challenge to the current status quo and a potentially contribute to further fragmentation of the laissez-faire-based global economic system (Aiyar et al. \u003cspan citationid=\"CR3\" class=\"CitationRef\"\u003e2023\u003c/span\u003e: 10\u0026ndash;11).\u003c/p\u003e \u003cp\u003eIn our understanding, industrial policy is defined by two main elements: first, production in some sectors is perceived by the state as more desirable than in others, and second, the state makes an active effort to nudge the production structure in this direction (Terzi, Singh, and Sherwood 2022: 8). Such framing of industrial policy, as well as the open use of the term, is a relatively recent phenomenon. While a certain level of government involvement in the economy has always been present, the concept of industrial policy itself has been rather controversial since the 1980s. Rodrik (\u003cspan citationid=\"CR66\" class=\"CitationRef\"\u003e2008\u003c/span\u003e) dubs this paradox the \u003cem\u003ewhy\u003c/em\u003e versus \u003cem\u003ehow\u003c/em\u003e of industrial policy, suggesting that (despite the actual policy practice) the intellectual debate had a tendency to revolve more around the dispute of whether industrial policy should be used at all, rather than in what ways. Limited industrial policy (although often under different names, such as innovation policy) was permitted and justified on the grounds of fixing market failures ( Lall \u003cspan citationid=\"CR50\" class=\"CitationRef\"\u003e2004\u003c/span\u003e; Glykou and Pitelis \u003cspan citationid=\"CR33\" class=\"CitationRef\"\u003e2011\u003c/span\u003e), with one of the most prevalent areas of state intervention being support for science and innovation (Cohen \u003cspan citationid=\"CR23\" class=\"CitationRef\"\u003e2006\u003c/span\u003e; Riess and V\u0026auml;lil\u0026auml; 2006; Pack and Saggi 2006). The resulting industrial policy strategies of the 1990s and 2000s adopted broad, horizontal policy measures ( Lall \u003cspan citationid=\"CR50\" class=\"CitationRef\"\u003e2004\u003c/span\u003e; Riess and V\u0026auml;lil\u0026auml; 2006), deliberately avoiding more selective and interventionist policy instruments. The \u0026ldquo;horizontal\u0026rdquo; industrial policy instruments were mostly broad enough not to come in conflict with the WTO framework.\u003c/p\u003e \u003cp\u003eIn the 2000s and decisively after 2010 we however see a shift towards the use of more active industrial policy (Wade \u003cspan citationid=\"CR72\" class=\"CitationRef\"\u003e2012\u003c/span\u003e; Mazzucato \u003cspan citationid=\"CR54\" class=\"CitationRef\"\u003e2015\u003c/span\u003e; Chang and Andreoni \u003cspan citationid=\"CR19\" class=\"CitationRef\"\u003e2020b\u003c/span\u003e; Aiginger and Rodrik 2020). This active wielding of economic power by states is in line with the argument made by Babić, Dixon, and Liu (\u003cspan citationid=\"CR10\" class=\"CitationRef\"\u003e2022\u003c/span\u003e), according to whom the new global rivalries and battles for hegemony will have a distinctly (geo)economic character. This supports the argument that the new industrial policy is not a fleeting phenomenon, but a new constant in the global economic system affected by the rising securitization in economic thinking. More active state interventions also have a higher probability of coming into conflict with international organizations of the neoliberal era, an occurrence that was mostly absent in the past due to states\u0026rsquo; self-imposed restraint on using more active industrial policy.\u003c/p\u003e \u003cp\u003eSubsidies play a prominent role in the industrial policy toolbox. Naud\u0026eacute; (\u003cspan citationid=\"CR57\" class=\"CitationRef\"\u003e2010\u003c/span\u003e) is one of the few scholars who specifically address the topic of industrial policy instruments, providing an extensive list of industrial policy domains and instruments. These span from very wide measures, such as monetary and exchange rate policies or general counter-cyclical fiscal policy, to more selective instruments, such as tariffs and quotas, the use of state-owned enterprises, as well as subsidies and governmental procurement. Instruments listed in the latter group require not only more active state involvement in the economy but also a more selective approach which requires the state to allocate resources specifically to preferred sectors, technologies, regions, etc. This distinguishes the new industrial policy from the previous horizontal approach, in which states favored broader, less selective measures.\u003c/p\u003e \u003cp\u003eThe rise in the use of subsidies in the recent two decades is examined by the World Bank (\u003cspan citationid=\"CR75\" class=\"CitationRef\"\u003e2023\u003c/span\u003e). The report presents a comprehensive overview of the use of the instrument and arrives at three main conclusions. First, the use of subsidies has risen substantially since the 2008 financial crisis (as illustrated by FIGURE \u003cspan refid=\"Fig1\" class=\"InternalRef\"\u003e1\u003c/span\u003e) and significantly surpassed the use of other trade measures (FIGURE \u003cspan refid=\"Fig2\" class=\"InternalRef\"\u003e2\u003c/span\u003e). Second, a majority of the subsidy programs originated in the global economic centers, with the US, the EU, and China in the decisive lead (FIGURE \u003cspan refid=\"Fig3\" class=\"InternalRef\"\u003e3\u003c/span\u003e). Third, manufacturing was the most subsidized sector, representing 25% of total subsidies (also shown in FIGURE \u003cspan refid=\"Fig3\" class=\"InternalRef\"\u003e3\u003c/span\u003e).\u003c/p\u003e \u003cp\u003eWhile the World Bank study does not approach subsidies explicitly as an instrument of industrial policy, it argues that over 20% of the studied subsidy programs appear to have a sectoral objective (p. 11), covering general sectoral financial support for the acquisition of capital goods, materials, and business operations, and may be used in pursuit of industrial policy. A second major category consists of incentives that help generate or transfer technology, again suggesting a more selective use of subsidies.\u003c/p\u003e \u003cp\u003eA similar picture arises from a closer analysis of the industrial policy programs of the three largest subsidy users: the US, the EU, and China. The increasing reliance on subsidies is present in both the European and US programs of support for semiconductor production. Both the European Chips Act and the CHIPS for America Act predominantly rely on subsidies as an instrument, as opposed to public procurement, TRIMs, or trade restrictions. They respectively promise to dedicate 43\u0026nbsp;billion euros and 52\u0026nbsp;billion USD (Burris, Stettner, and Valle-Gutierrez 2022; European Commission \u003cspan citationid=\"CR28\" class=\"CitationRef\"\u003e2024\u003c/span\u003e) to the support of semiconductor manufacturing. These initiatives can be seen as \u0026ldquo;flagship\u0026rdquo; EU and US industrial policy programs in two distinct senses: first, they are respectively the largest European and US industrial policy programs for a single industry in terms of funding (Badlam et al. \u003cspan citationid=\"CR11\" class=\"CitationRef\"\u003e2022\u003c/span\u003e; Burris, Stettner, and Valle-Gutierrez 2022; Timmers \u003cspan citationid=\"CR71\" class=\"CitationRef\"\u003e2022\u003c/span\u003e). Second, their clear-cut and specific goals expressed in terms of production and market share targets, as well as in decreasing dependence on imports, suggest that there are distinct state objectives behind these programs (White House \u003cspan citationid=\"CR40\" class=\"CitationRef\"\u003e2022\u003c/span\u003e; European Commission \u003cspan citationid=\"CR28\" class=\"CitationRef\"\u003e2024\u003c/span\u003e). Therefore, the semiconductor programs represent both a quantitative and qualitative shift in the practice of industrial policy by Western countries, in the direction of more public spending and more selective state objectives.\u003c/p\u003e \u003cp\u003eMeanwhile, in China, industrial policy is deeply embedded in the economic model itself. Most banks and many major enterprises are partially or wholly state-owned, and even technically private firms must remain receptive to public initiatives (Terzi, Singh, and Sherwood 2022). This structure grants the party-state extensive control, enabling it to support selected firms and industries by influencing purchases, prices, and credit allocation. The best available empirical analysis, conducted by the Center for Strategic and International Studies, estimates that China spends more than twice the share of its GDP on industrial policies as South Korea, the second most intensive user, and three times the absolute amount of the United States, the second-largest spender overall (DiPippo et al. \u003cspan citationid=\"CR26\" class=\"CitationRef\"\u003e2022\u003c/span\u003e). Naughton (\u003cspan citationid=\"CR58\" class=\"CitationRef\"\u003e2021\u003c/span\u003e) notes that China reintroduced national-level industrial policy in 2006 after previously implementing it at the regional level. Since then, it has expanded significantly in both ambition and scale, with a particular focus on semiconductors. Indeed, some scholars argue that China\u0026rsquo;s industrial policy resurgence has driven advanced economies to revive their own interventionist approaches (Terzi, Singh, and Sherwood 2022; Goldwyn and Clabough 2023).\u003c/p\u003e"},{"header":"4. The WTO’s regime for industrial subsidies","content":"\u003cp\u003eThe regulation of industrial policy, a broad concept encompassing diverse instruments, is spread across multiple WTO agreements. Our article focuses on subsidies and the SCM Agreement that governs them, based on the reasoning outlined in the previous section: namely that subsidies are used at a growing pace and currently may represent the most significant instrument of the renewed industrial policy agenda. The SCM Agreement has already been reviewed and summarized in many existing sources (Aky\u0026uuml;z, Chang, and Kozul-Wright 1998; Bora, Lloyd, and Pengestu 2000; Shadlen \u003cspan citationid=\"CR67\" class=\"CitationRef\"\u003e2005\u003c/span\u003e; Ayala and Gallagher 2005; Aky\u0026uuml;z \u003cspan citationid=\"CR4\" class=\"CitationRef\"\u003e2010\u003c/span\u003e; Hoekman and Kostecki 2013). In this section, we briefly contextualize the SCM Agreement within the system of WTO law and summarize its most consequential rules from the point of view of the new industrial policy.\u003c/p\u003e \u003cp\u003eThe SCM Agreement builds on the earlier, voluntary Subsidies Code negotiated during the Tokyo Round and, like its predecessor, aims to clarify and operationalize Article XVI (on subsidies as such) and Article VI (on countervailing duties) of the GATT. The original GATT provisions, in place since 1947, treated subsidies largely as a matter of soft law, offering recommendations rather than binding obligations, with the exception of a notification requirement that member states have historically followed only inconsistently (Hoekman and Kostecki 2013: 74).\u003c/p\u003e \u003cp\u003eThe creation of the WTO in 1995, along with the adoption of the SCM Agreement, introduced several systemic changes to the global subsidies regime that merit attention. First, subsidy rules became generally binding for all members as part of the WTO\u0026rsquo;s single undertaking. Second, GATT has remained applicable to subsidies as a \u003cem\u003elex generalis\u003c/em\u003e, meaning it applies where the SCM Agreement does not offer more specific provisions. For instance, subsidies may violate GATT\u0026rsquo;s national treatment obligation if they result in more favorable treatment of domestic over imported goods. At the same time, WTO law permits governments to limit subsidy programs to domestic recipients. Because the SCM Agreement complements the GATT, it applies only to trade in goods and thus excludes subsidies related to services or incentives for foreign direct investment. Although it formally covers agricultural subsidies, the more permissive Agreement on Agriculture takes precedence in that area as a \u003cem\u003elex specialis\u003c/em\u003e. Finally, the WTO institutionalized the adjudication of subsidy-related disputes by placing them under the jurisdiction of the Dispute Settlement Body.\u003c/p\u003e \u003cp\u003eThe SCM Agreement begins with a definition of a subsidy in Article 1. It defines a subsidy as any measure involving government expenditure that confers a benefit to the recipient. This may take the form of a direct transfer of funds (such as a grant, loan, or equity infusion), the foregoing of government revenue (such as a tax break), the provision of goods or services by the government, or support provided indirectly through a non-state entity (such as a state-owned enterprise acting on behalf of the government). This broad definition encompasses multiple instruments included in Naud\u0026eacute;'s (2010) classification of industrial policy instruments. As such, the SCM Agreement serves as the central legal framework for the global regulation of industrial subsidies.\u003c/p\u003e \u003cp\u003eAt the core of the SCM Agreement is the distinction between specific and non-specific subsidies. Non-specific subsidies (defined in Article 2.1(b) and otherwise by omission) refer to neutral, broad-based, non-discriminatory measures that are not targeted at particular firms or industries. They are generally available across the economy and typically allocated based on objective, consistently applied eligibility criteria. Under the SCM Agreement, such subsidies are not subject to any limitations and cannot be challenged before the WTO\u0026rsquo;s Dispute Settlement Body. This effectively permits a range of non-selective industrial policy measures, such as horizontal support for research and development, which were common in developed countries during the 1990s and 2000s and are unlikely to distort international trade.\u003c/p\u003e \u003cp\u003eSpecific subsidies, as defined in the remainder of Article 2, are those explicitly or implicitly limited to particular enterprises or industries, making them sectoral in nature. These subsidies are often aimed at supporting national champions or fostering the development of infant industries. As a result, specific subsidies are closely aligned with the new, more selective industrial policy. Due to their targeted nature, specific subsidies can distort trade, which is likely why their use is subject to the SCM Agreement\u0026rsquo;s restrictions. The Agreement imposes the strictest limitations on subsidies that directly influence trade, prohibiting them outright regardless of their economic impact. Article 3 defines prohibited subsidies as those contingent on export performance (export subsidies) or on the use of domestic goods instead of imports (import-substitution subsidies). Because these subsidies are prohibited, a state challenging them in a dispute need only demonstrate the existence of the subsidy and its export or import-substitution nature. Once proven, the Dispute Settlement Body (DSB) can order the offending state to repeal the subsidy, without having to establish that it, in fact, distorts trade.\u003c/p\u003e \u003cp\u003eWhat remains is the intermediary category of actionable subsidies \u0026ndash; subsidies that are specific but not contingent on increasing exports or limiting imports. Notably, this is a vast area, encompassing all forms of support to specific economic sectors or individual national champions that are not tied to trade-related performance requirements. In this sense, it arguably includes the bulk of selective subsidies introduced with the rise of new industrial policy, such as key initiatives in the EU, the United States, and China discussed in the previous section.\u003c/p\u003e \u003cp\u003eActionable subsidies are \u003cem\u003ea priori\u003c/em\u003e allowed unless they cause \u0026ldquo;adverse effects\u0026rdquo; to other WTO member states. This implies that in disputes concerning actionable subsidies, the complaining member has to show not only that a specific subsidy exists and that it confers a benefit to the enterprises or industries of the subsidizing country, but also that the subsidy has concrete negative effects on the complaining member state. This both places an extra burden of proof on the complainant but also changes the status of the subsidies in a more nuanced way. Whereas prohibited subsidies are outlawed \u003cem\u003eex-ante\u003c/em\u003e based on the agreement itself, actionable subsidies are in principle permitted, and their use can only be restricted in a specific case by a decision of the DSB. This arrangement therefore creates flexibility for member states, who can use actionable subsidies without breaching substantive WTO law until someone successfully sues them. Hypothetically, if no country initiates a dispute, all actionable subsidies will remain in compliance with the SCM Agreement.\u003c/p\u003e \u003cp\u003eBesides launching disputes at the WTO, member states can also counter specific subsidies of other members by imposing countervailing duties, which are special tariffs imposed on subsidized products. The rules for imposition of countervailing duties, both in terms of substantive and procedural law, are covered in great depth in the SCM Agreement\u0026rsquo;s Articles 10\u0026ndash;24. If one member state imposes countervailing duties, the allegedly subsidizing state may respond by launching a dispute at the WTO and claiming that the duties were imposed in contravention of the rules set out by the SCM Agreement.\u003c/p\u003e \u003cp\u003eOverall, any member facing perceived injury to its domestic industries can therefore choose whether to attempt to sue the subsidizing state via the WTO\u0026rsquo;s dispute settlement system to force it to change its policies, or whether to impose countervailing duties on the subsidized goods and wait if the other state launches a dispute against these countervailing duties. The advantage of the first option is that it targets the subsidy as such, which can also affect the ability of the aggrieved state to export its products to the subsidizing state itself, or into third countries, whereas countervailing duties only protect its own domestic market. The disadvantage is the necessity to cope with the burden of proof.\u003c/p\u003e"},{"header":"5. WTO Disputes Involving Prohibited and Actionable Subsidies","content":"\u003cdiv id=\"Sec6\" class=\"Section2\"\u003e \u003ch2\u003e5.1. Dispute Selection and Analytical Framework\u003c/h2\u003e \u003cp\u003eTo better understand the dynamics of the WTO regime for subsidies, we compiled a database of all WTO dispute settlement cases since the organization\u0026rsquo;s establishment in 1995 in which the use of subsidies by member states was examined under the SCM Agreement. The database tracks how frequently subsidies have been contested, the average duration of disputes, and the rate at which subsidizing states successfully defended their measures as legitimate. The findings indicate that even when the WTO possessed a fully functional dispute settlement system and countries were generally more willing to adhere to its rules under the neoliberal paradigm, enforcing the SCM Agreement was legally complex, time-consuming, and inefficient, in particular for actionable subsidies. As a result, member states largely refrained from initiating disputes concerning their use.\u003c/p\u003e \u003cp\u003eOur database includes 140 disputes launched under the SCM Agreement since the WTO\u0026rsquo;s establishment, which we present in three thematically distinct categories: disputes involving prohibited subsidies, actionable subsidies, and countervailing duties. The first two categories consist of cases in which member states challenged the use of specific subsidies by other members, typically their trading partners. While WTO procedures\u0026mdash;such as requests for consultations and panel proceedings\u0026mdash;formally distinguish between prohibited and actionable subsidies as defined in the SCM Agreement, it is not uncommon for complainants to allege the simultaneous use of both types. Of the 140 cases, 19 involved claims concerning both prohibited and actionable subsidies. These \u0026ldquo;dual\u0026rdquo; cases are analyzed in both relevant categories. Disputes involving countervailing subsidies, launched by the subsidizing state itself, are completely distinct from the other two categories and are treated as such.\u003c/p\u003e \u003cp\u003eAnother reason why subsidy disputes resist neat categorization is the common practice whereby complainant states invoke multiple WTO agreements within a single request for consultations or panel proceedings. Cases concerning prohibited and actionable subsidies frequently also involve claims under the GATT, the Agreement on Agriculture, or the TRIMs Agreement. In compiling our database, we have included all such disputes but limited our analysis strictly to those aspects of each case that pertain to the SCM Agreement, excluding rulings based solely on other legal instruments. The same approach was applied to disputes over countervailing duties, which often also raise claims concerning anti-dumping duties, as both types of trade remedies are frequently imposed concurrently on the same products.\u003c/p\u003e \u003cp\u003eOf the 140 disputes included in the database, 45 did not proceed beyond the consultations stage; in 4 cases, the request for a panel was withdrawn; in 6 cases, the panel was never established or failed to issue a ruling for other reasons; 8 disputes were resolved through a mutually agreed solution; 13 were decided solely on the basis of agreements other than the SCM Agreement; and in 6 cases, no ruling had been issued at the time of writing. The remaining 58 cases resulted in at least a panel decision on the merits of the case under the SCM Agreement, and these have been subjected to further analysis.\u003c/p\u003e \u003cp\u003eTo that end, we have traced the outcomes of these 58 disputes through the successive stages of the proceedings: (1) the panel report; (2) the Appellate Body decision; (3) compliance proceedings (normally the report of a compliance panel, and, where applicable, the final decision following any subsequent appeal); and (4) the remedy decision. To present the results as clearly as possible, we present the disputes from the perspective of the alleged user of subsidies: in cases involving prohibited and/or actionable subsidies, this corresponds to the respondent, while in cases concerning countervailing duties, it corresponds to the complainant.\u003c/p\u003e \u003cp\u003eThe complexity of the WTO dispute settlement process makes it difficult to classify rulings in a straightforward manner as either successful or unsuccessful for any party, as most disputes involve multiple distinct claims. This often results in outcomes where some elements of a complaint are upheld while others are dismissed. To approximate the success rate of countries in defending their use of specific subsidies, we have categorized decisions at each stage of the proceedings into three outcomes: \u003cem\u003efull success\u003c/em\u003e, \u003cem\u003epartial success\u003c/em\u003e, and \u003cem\u003ecomplete failure\u003c/em\u003e, from the perspective of the subsidizing state.\u003c/p\u003e \u003cp\u003e\u0026ldquo;Full success\u0026rdquo; at the panel stage refers to instances where the panel ruled entirely in favor of the subsidizing state on all claims alleging violations of the SCM Agreement. In this context, it is not relevant whether the panel accepted all of the subsidizing state\u0026rsquo;s legal arguments, but only whether it ruled in its favor on all claims of a violation. Appellate Body proceedings introduce additional complexity, as both parties may appeal different aspects of the panel\u0026rsquo;s ruling. For the purposes of this analysis, a decision is classified as a \u0026ldquo;full success\u0026rdquo; only if the subsidizing state prevails on all contested points, regardless of which party initiated the appeal.\u003c/p\u003e \u003cp\u003eIn compliance proceedings, success or failure is determined by the compliance panel\u0026rsquo;s assessment of whether the respondent has fulfilled its obligations following the final ruling of the panel or Appellate Body. In remedy proceedings, success is defined by whether the Dispute Settlement Body accepts or rejects the countermeasures proposed by the complainant state in response to alleged non-compliance, again evaluated from the perspective of the subsidizing state.\u003c/p\u003e \u003cp\u003eFinally, we include a category of \u0026ldquo;overall outcome,\u0026rdquo; which captures the ultimate result of the entire dispute. A case is considered a full success only if the subsidizing state prevails at every stage and on every claim. As such, full success is less likely in complex disputes involving multiple claims, which usually end in partial success for both parties and are difficult to summarize unambiguously.\u003c/p\u003e \u003c/div\u003e \u003cdiv id=\"Sec7\" class=\"Section2\"\u003e \u003ch2\u003e5.2. Disputes on prohibited subsidies\u003c/h2\u003e \u003cp\u003e \u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab1\" border=\"1\"\u003e \u003ccaption language=\"En\"\u003e \u003cdiv class=\"CaptionNumber\"\u003eTable 1\u003c/div\u003e \u003cdiv class=\"CaptionContent\"\u003e \u003cp\u003eDisputes concerning prohibited subsidies\u003c/p\u003e \u003c/div\u003e \u003c/caption\u003e \u003ccolgroup cols=\"6\"\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e \u003cthead\u003e \u003ctr\u003e \u003cth align=\"left\" colspan=\"6\" nameend=\"c6\" namest=\"c1\"\u003e \u003cp\u003eDisputes concerning prohibited subsidies\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003ctr\u003e \u003cth align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/th\u003e \u003cth align=\"left\" colname=\"c2\"\u003e \u003cp\u003ePanel report\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c3\"\u003e \u003cp\u003eAppellate decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c4\"\u003e \u003cp\u003eCompliance decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c5\"\u003e \u003cp\u003eRemedy decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c6\"\u003e \u003cp\u003eOverall outcome\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003c/thead\u003e \u003ctbody\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eFull success\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e4/21\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e4/13\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e1/8\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0/6\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e6/18\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003ePartial success\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e9/21\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e4/13\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e3/8\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e2/6\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e8/18\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eComplete failure\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e8/21\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e5/13\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e4/8\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e4/6\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e4/18\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003c/tbody\u003e \u003c/colgroup\u003e \u003c/table\u003e\u003c/div\u003e \u003c/p\u003e \u003cp\u003eSource: Own compilation\u003c/p\u003e \u003cp\u003eIt is immediately clear from Table \u003cspan refid=\"Tab1\" class=\"InternalRef\"\u003e1\u003c/span\u003e that the results of disputes are highly mixed, with almost one half resulting in a partial success for both the user of subsidies and its opponent and one third resulting with the country accused of using prohibited subsidies successfully defending its policies as legitimate. We judged the overall outcome only for concluded cases and omitted ongoing ones, which created a seeming discrepancy between the number of cases at the panel report stage and the overall outcome stage. In the case of prohibited subsidies, we have thus omitted three technically ongoing cases in which the subsidizing state (India in two cases and Indonesia in one case) has appealed \u0026ldquo;into the void\u0026rdquo; to the currently non-functioning Appellate Body.\u003c/p\u003e \u003cp\u003ePerhaps more illustrative is the relatively high number of disputes concerning prohibited subsidies, which underscores both the perceived importance of the SCM Agreement\u0026rsquo;s disciplines on export- and import-substituting subsidies and the willingness of member states to seek their enforcement. As of the time of writing, such subsidies had been challenged in 68 out of the 633 disputes brought since the WTO\u0026rsquo;s establishment, representing 10.7% of all cases. While the frequency of disputes has declined somewhat over time \u0026ndash; with 28 initiated between 1995 and 2004, 24 between 2005 and 2014, and 16 between 2015 and 2024 \u0026ndash; this record suggests that the SCM Agreement remains a viable framework in the area of prohibited subsidies. Member states expect compliance with its core obligations and are prepared to pursue formal dispute settlement when violations are perceived. As we shall shortly see, this stands in sharp contrast to the relatively underutilized provisions on actionable subsidies.\u003c/p\u003e \u003cp\u003eWe may also note that litigation at the WTO is time-consuming: on average, the process from the initiation of consultations to the issuance of a final decision in disputes involving prohibited subsidies lasted 59 months. This figure is skewed by the two behemoth cases, DS316 (Airbus) and DS353 (Boeing). It is therefore more appropriate to consider the median duration, which stands at 38 months. In other words, it typically takes over three years for a country to obtain a ruling requiring another member to eliminate its prohibited subsidies. In complex cases, such as the Airbus dispute \u0026ndash; which remains unresolved despite being initiated in 2004 \u0026ndash; the process can take considerably longer.\u003c/p\u003e \u003cp\u003eOverall, we can say that the WTO\u0026rsquo;s prohibition of export and import-substituting subsidies is enforced with a reasonable degree of frequency and success through dispute settlement. As we will see, in the realm of actionable subsidies, the willingness of states to enforce the disciplines of the SCM Agreement appears to be largely absent.\u003c/p\u003e \u003c/div\u003e\n\u003ch3\u003e5. 3. Disputes on actionable subsidies\u003c/h3\u003e\n\u003cp\u003e \u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab2\" border=\"1\"\u003e \u003ccaption language=\"En\"\u003e \u003cdiv class=\"CaptionNumber\"\u003eTable 2\u003c/div\u003e \u003cdiv class=\"CaptionContent\"\u003e \u003cp\u003eDisputes concerning actionable subsidies\u003c/p\u003e \u003c/div\u003e \u003c/caption\u003e \u003ccolgroup cols=\"6\"\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e \u003cthead\u003e \u003ctr\u003e \u003cth align=\"left\" colspan=\"6\" nameend=\"c6\" namest=\"c1\"\u003e \u003cp\u003eDisputes concerning actionable subsidies\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003ctr\u003e \u003cth align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/th\u003e \u003cth align=\"left\" colname=\"c2\"\u003e \u003cp\u003ePanel report\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c3\"\u003e \u003cp\u003eAppellate decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c4\"\u003e \u003cp\u003eCompliance decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c5\"\u003e \u003cp\u003eRemedy decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c6\"\u003e \u003cp\u003eOverall outcome\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003c/thead\u003e \u003ctbody\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eFull success\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e3/10\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e-\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e-\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e-\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e3/10\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003ePartial success\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e2/10\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e2/3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e3/3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e-\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e3/10\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eComplete failure\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e5/10\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e1/3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e-\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e3/3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e4/10\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003c/tbody\u003e \u003c/colgroup\u003e \u003c/table\u003e\u003c/div\u003e \u003c/p\u003e \u003cp\u003eSource: Own compilation\u003c/p\u003e \u003cp\u003eAs can be seen in Table \u003cspan refid=\"Tab2\" class=\"InternalRef\"\u003e2\u003c/span\u003e, disputes concerning actionable subsidies are far less common than those involving prohibited subsidies. During the 30 years of the WTO\u0026rsquo;s existence, only 10 disputes over actionable subsidies resulted in a final decision by the Dispute Settlement Body. In total, including cases that did not lead to a final ruling or were decided under agreements other than the SCM Agreement, 29 such disputes have been initiated since 1995 \u0026ndash; amounting to little less than one per year and less than half the number of cases concerning prohibited subsidies. In terms of outcomes, success appears to be roughly balanced between subsidizing states and complainants.\u003c/p\u003e \u003cp\u003eHowever, both the number of cases presented in the table and the observed rate of loss for subsidizing states are somewhat inflated by what was effectively a single dispute divided into four separate cases. In 1996, the European Communities, the United States, and Japan initiated consultations with Indonesia over its program of support for national car production, which involved tax and tariff exemptions contingent on local content. As Japan requested consultations on two separate occasions, this resulted in the launching of four disputes (DS54, DS55, DS59, and DS64), all of which were ultimately resolved by a single panel that ruled entirely against Indonesia. Consequently, there has been only one instance in the history of the WTO where the Dispute Settlement Body issued a full ruling against a subsidizing state based on the actionable subsidy provisions of the SCM Agreement. Another case \u0026ndash; concerning US agricultural subsidies for cotton \u0026ndash; resulted in an almost complete defeat for the US, although it is classified as a \u0026ldquo;partial success\u0026rdquo; in our database due to the mixed outcome of the compliance panel\u0026rsquo;s findings. Even so, two clear losses for subsidizing states under the actionable subsidy rules remain remarkably few.\u003c/p\u003e \u003cp\u003eMoreover, disputes that focus exclusively on actionable subsidies are exceedingly rare. Over the entire history of the WTO, there has been only one case (DS71) launched solely on the basis of the SCM Agreement\u0026rsquo;s provisions on actionable subsidies, which ended at the consultation stage. All other 28 disputes launched to date have also involved either prohibited subsidies, other WTO agreements such as GATT, the TRIMs Agreement, or the Agreement on Agriculture, or a combination thereof. This strongly suggests that member states do not consider it worthwhile to pursue enforcement of the actionable subsidy provisions unless they also perceive a simultaneous violation of another legal commitment by the subsidizing state. In other words, states do not initiate disputes against foreign subsidies unless these are viewed as discriminatory: either because they are tied to export promotion or import substitution (and thus prohibited), or as constituting a breach of the national treatment principle under GATT or other WTO agreements.\u003c/p\u003e \u003cp\u003eThe long-standing reluctance of states to initiate disputes concerning actionable subsidies can be attributed to several factors identified in the literature (see for example Hoekman and Kostecki 2013: 227; Bown, 2023). First, the dispute settlement process imposes a significant burden of proof on the complaining party. In addition to demonstrating the existence of specific subsidies granted by the respondent state, the complainant must also establish the presence of adverse effects \u0026ndash; a challenging evidentiary requirement that does not apply in cases involving prohibited subsidies. This requirement makes disputes over actionable subsidies particularly data-intensive and procedurally demanding, as emphasized by Bown (2023). According to his analysis, the time and resources required to gather sufficient evidence may render the dispute effectively useless: by the time a final ruling is issued (often following a lengthy panel and Appellate Body process), the subsidizing country\u0026rsquo;s exports may already have captured the relevant market share. It is good to note in this context that there can be retrospective penalties imposed on the subsidizing state under WTO law \u0026ndash; the point is return to compliance, not punishment. In this sense, the system may fail to offer timely or effective remedies for affected industries, further discouraging members from pursuing such cases.\u003c/p\u003e \u003cp\u003eSecond, respondent states have procedural instruments at their disposal that allow them to obstruct or delay proceedings if they choose to do so. The Airbus and Boeing disputes in particular highlight how states can exploit weaknesses in WTO procedural law and the organization's limited enforcement capacity to prolong cases indefinitely. This can be done through repeated initiation of new rounds of appeals, and through effectively refusing to comply with unfavorable rulings by delaying implementation or only addressing minor aspects of the decision. In the Airbus dispute, for example, the EU was found (first by the panel, then by the Appellate Body, and later through several compliance rulings) to have maintained various forms of support for Airbus that constituted prohibited or actionable subsidies causing adverse effects. Nonetheless, the EU never withdrew the bulk of these measures. Instead, it consistently claimed full compliance and continued to appeal unfavorable findings whenever possible. When it could not appeal further, it waited for the United States to initiate a new round of proceedings.\u003c/p\u003e \u003cp\u003eSince 2019, such stalling tactics have been further facilitated by the ability to \"appeal into the void\" \u0026ndash; that is, to block the continuation of the case by appealing rulings to a non-functioning Appellate Body. This tactic has been employed in subsidy disputes by the United States (DS523, DS533, DS539), India (DS580, DS581), and Indonesia (DS592). These complications contribute significantly to the lengthy duration of actionable subsidies cases. On average, a concluded dispute involving actionable subsidies took 76 months, or over six years, from start to finish. The median duration was 34 months or little under three years. The likelihood that disputes will become highly drawn out and may ultimately fail to compel the subsidizing state to change its policies in any meaningful way can discourage countries from initiating cases under the actionable subsidy provisions in the first place.\u003c/p\u003e \u003cp\u003eThe third reason for states\u0026rsquo; reluctance to initiate disputes stems from the fact that launching a dispute may trigger retaliatory proceedings by the opposing party. The Airbus and Boeing cases, along with a series of disputes between Canada and Brazil concerning subsidies in the aircraft industry, illustrate how a respondent state may retaliate by initiating proceedings of its own, resulting in tit-for-tat litigation. Moreover, since actionable subsidies are in principle permitted and widely used by both developed and developing countries, nearly every prospective complainant is also a potential respondent. This creates a situation of mutual deterrence, where countries may be reluctant to initiate disputes out of concern that they themselves could soon be targeted. This dynamic has been described as a fear of \u0026ldquo;casting the first stone in a glass house\u0026rdquo; (Hoekman and Kostecki 2013: 227). As more states adopt subsidy practices, the reluctance to initiate disputes is expected to grow, since the risk of retaliation becomes even greater in a world where such policies are ubiquitous. Furthermore, as Bown (2023) points out, the necessary evidence often must be obtained from private firms, which may have commercial interests in the respondent state. These firms may be unwilling to cooperate, fearing possible retaliation against their business operations in the sued country.\u003c/p\u003e \u003cp\u003eFinally, Bown also notes the existence of a free-rider problem: because subsidies often generate adverse effects for multiple countries, no single state has a strong incentive to incur the costs of lengthy litigation. Even if the dispute succeeds, the resulting benefits \u0026ndash; such as the withdrawal of the subsidy \u0026ndash; are likely to be shared among all affected trading partners, thus diluting the incentive for any one state to act.\u003c/p\u003e \u003cp\u003eWhen considering that actionable subsidies are not inherently prohibited and are rarely the subject of complaints, it becomes clear that they are, in practice, largely permitted and tolerated within the WTO framework. Even at the height of the neoliberal era following the WTO's creation, this flexibility was evident. The resurgence of interventionist subsidies does not fundamentally undermine this pre-existing regime; rather, it reflects the enduring flexibility of the system, which the member countries increasingly leverage.\u003c/p\u003e\n\u003ch3\u003e5. 4. Disputes on countervailing duties\u003c/h3\u003e\n\u003cp\u003e \u003cdiv class=\"gridtable\"\u003e\u003ctable float=\"Yes\" id=\"Tab3\" border=\"1\"\u003e \u003ccaption language=\"En\"\u003e \u003cdiv class=\"CaptionNumber\"\u003eTable 3\u003c/div\u003e \u003cdiv class=\"CaptionContent\"\u003e \u003cp\u003eDisputes concerning countervailing duties\u003c/p\u003e \u003c/div\u003e \u003c/caption\u003e \u003ccolgroup cols=\"6\"\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c1\" colnum=\"1\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c2\" colnum=\"2\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c3\" colnum=\"3\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c4\" colnum=\"4\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c5\" colnum=\"5\"\u003e\u003c/div\u003e \u003cdiv align=\"left\" class=\"colspec\" colname=\"c6\" colnum=\"6\"\u003e\u003c/div\u003e \u003cthead\u003e \u003ctr\u003e \u003cth align=\"left\" colspan=\"6\" nameend=\"c6\" namest=\"c1\"\u003e \u003cp\u003eDisputes concerning countervailing duties\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003ctr\u003e \u003cth align=\"left\" colname=\"c1\"\u003e\u0026nbsp;\u003c/th\u003e \u003cth align=\"left\" colname=\"c2\"\u003e \u003cp\u003ePanel report\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c3\"\u003e \u003cp\u003eAppellate decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c4\"\u003e \u003cp\u003eCompliance decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c5\"\u003e \u003cp\u003eRemedy decision\u003c/p\u003e \u003c/th\u003e \u003cth align=\"left\" colname=\"c6\"\u003e \u003cp\u003eOverall outcome\u003c/p\u003e \u003c/th\u003e \u003c/tr\u003e \u003c/thead\u003e \u003ctbody\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eFull success\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e6/33\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e5/18\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e5/10\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0/3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e\u003cb\u003e3/26\u003c/b\u003e\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003ePartial success\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e21/33\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e11/18\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e5/10\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e3/3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e\u003cb\u003e16/26\u003c/b\u003e\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003ctr\u003e \u003ctd align=\"left\" colname=\"c1\"\u003e \u003cp\u003e\u003cb\u003eComplete failure\u003c/b\u003e:\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c2\"\u003e \u003cp\u003e6/33\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c3\"\u003e \u003cp\u003e2/18\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c4\"\u003e \u003cp\u003e0/10\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c5\"\u003e \u003cp\u003e0/3\u003c/p\u003e \u003c/td\u003e \u003ctd align=\"left\" colname=\"c6\"\u003e \u003cp\u003e\u003cb\u003e7/26\u003c/b\u003e\u003c/p\u003e \u003c/td\u003e \u003c/tr\u003e \u003c/tbody\u003e \u003c/colgroup\u003e \u003c/table\u003e\u003c/div\u003e \u003c/p\u003e \u003cp\u003eSource: Own compilation\u003c/p\u003e \u003cp\u003eDisputes over countervailing duties (Table \u003cspan refid=\"Tab3\" class=\"InternalRef\"\u003e3\u003c/span\u003e) are among the most frequent cases concerning subsidies within the WTO. A total of 33 such disputes reached at least the panel level, with 26 concluding with a final decision. When considering disputes that did not result in a final ruling or were decided solely under the Anti-Dumping Agreement, the number of countervailing duty disputes rises to 62. Notably, the average duration of these proceedings is 45 months (just under four years), with the median length at 36 months (approximately three years). This suggests that countervailing duty cases tend to be shorter than those concerning other types of subsidies.\u003c/p\u003e \u003cp\u003eThe distribution between full success and failure is relatively even. Given that many disputes involve multiple alleged violations levied against the respondents in a hit-and-miss fashion, it is unsurprising that most cases fall into the \"partial success\" category. While only three cases resulted in a complete and unambiguous victory for the subsidizing state (the complainant), the data nonetheless indicate that the WTO\u0026rsquo;s dispute settlement system provides a viable mechanism for defending against foreign countervailing duties. This dynamic reinforces the position of states using subsidies, particularly in industries subject to international competition.\u003c/p\u003e \u003cp\u003eIn light of the resurgence of more interventionist industrial policies, countervailing duties are likely to become an increasingly important instrument in the trade remedy arsenal. These duties serve a defensive purpose and are considerably less intrusive than litigation targeting prohibited or actionable subsidies, which seeks to compel the subsidizing state to alter its domestic policies. As such, overseeing the use of countervailing duties, which are rooted in the GATT itself and therefore pre-date binding disciplines on subsidies themselves, is a goal in line with the WTO\u0026rsquo;s evolving role. If the organization can maintain a degree of order in this area, it will continue to play a crucial role in balancing the objective of defending global free trade with the reality of states pursuing more active industrial policy, therefore accommodating the tension that is likely to intensify beyond what we have seen during the GATT/WTO era so far.\u003c/p\u003e"},{"header":"6. The permissiveness of the SCM Agreement and implications for the future of the WTO","content":"\u003cp\u003eThe WTO faces a gradually deepening crisis. Following the success of the Uruguay Round in the late 1980s and early 1990s, global trade integration has largely stalled, most notably due to the failure of the Doha Round, which still remains unresolved. This can be presented as the first stage of the crisis, in which the WTO failed to perform its role as the main facilitator of economic liberalization. This stagnation has also affected industrial subsidies: the SCM Agreement, established at the WTO's establishment in 1995 based on the Tokyo Round-era Subsidies Code, has never been enhanced or expanded through further negotiations. Articles on non-actionable subsidies expired in 2000, and a 2017 initiative by the European Union and Japan to reform the Agreement and extend the definition of prohibited subsidies failed to gain traction (Howse, 2020). For a time, the WTO was still able to uphold its second task of a defender of the status quo by presiding over the previously crafted agreements and deciding disputes. However, even this more modest and stagnant role was dealt a significant blow under the first Trump administration, which disabled the proper functioning of the DSB by blocking the appointment of judges into its Appellate Body (Howse 2020). As a result, the organization has been unable to fully resolve disputes arising from existing agreements, including the SCM Agreement.\u003c/p\u003e \u003cp\u003eThe progressing decline of the WTO is often described as \u0026ldquo;gridlock\u0026rdquo;, a term originally coined by Hale, Held, and Young (\u003cspan citationid=\"CR37\" class=\"CitationRef\"\u003e2013\u003c/span\u003e) to describe the breakdown in international cooperation over challenges of transnational importance. In a follow-up article, Hale and Held (2017) describe a downward spiral in which the dysfunction of global institutions erodes their legitimacy, triggering a backlash that further weakens them. Klasen (\u003cspan citationid=\"CR47\" class=\"CitationRef\"\u003e2017\u003c/span\u003e) specifically addresses the gridlock in the global trade regime, outlining the first stage of the WTO crisis by arguing that the trade liberalization ground to a standstill due to growing multipolarity in the trade negotiations, fragmentation of the trade negotiations between the global and regional levels, and the emergence of more complex transborder problems that trade negotiations must address. Further research on gridlock in the WTO then focuses on the second stage of the crisis, mainly on the collapse of the Appellate Body (Bahri \u003cspan citationid=\"CR12\" class=\"CitationRef\"\u003e2019\u003c/span\u003e; Khan and Wu 2021).\u003c/p\u003e \u003cp\u003eWhile the literature on gridlock offers valuable insights into the ongoing decline of the WTO in the context of rising economic nationalism, we argue that the WTO's regime on subsidies has always been relatively permissive, shallow, and difficult to enforce\u0026mdash;particularly when it comes to actionable subsidies. The dispute database reveals that, even during the height of the WTO's influence in the 1990s and 2000s, it was still exceptionally challenging to identify and prove violations of the SCM Agreement, and that states largely refrained from initiating complaints regarding actionable subsidies, allowing them to remain as a available policy instrument.\u003c/p\u003e \u003cp\u003eThis has several implications. First, it highlights the fact that even in an era when the WTO\u0026rsquo;s dispute settlement system was functioning effectively and countries were generally more willing to adhere to its rules, the SCM Agreement was too permissive to meaningfully restrict the use of subsidies not directly contingent on limiting imports or promoting exports. What constrained subsidy use, in fact, was the consensus among leading economic powers to favor market mechanisms and avoid aggressive industrial policies that could disrupt markets, harm competitors, and create tensions between countries with competing firms. However, when this consensus was absent\u0026mdash;such as in the case of the Airbus and Boeing disputes, which were seen as strategic by the EU and the US\u0026mdash;the WTO was not only unable to enforce full compliance with its rulings but also failed to deliver a final and unequivocal decision within a reasonable timeframe. As the neoliberal consensus wanes and governments increasingly approach economic issues not through a depoliticized market lens but as a geopolitical competition for dominance in strategic industries, the weaknesses of global governance in the realm of subsidies are likely to become much more apparent.\u003c/p\u003e \u003cp\u003eHowever, the weakness of the WTO\u0026rsquo;s subsidy regime can also be seen as a \u0026ldquo;virtue of last resort\u0026rdquo; of the organization. The relative permissiveness of the SCM Agreement allows countries to pursue interventionist policies without unambiguously violating their WTO commitments. This flexibility allows the WTO to maintain a degree of relevance in the climate of rising economic nationalism by avoiding direct confrontations with member states that might otherwise openly defy its rulings and thus risk further erosion of its authority.\u003c/p\u003e \u003cp\u003eThis distinction sets subsidies apart from another policy instrument that has also resurfaced in recent years: tariffs. The tariffs imposed by the Trump administration\u0026mdash;primarily on China during his first term and on most countries during his second term\u0026mdash;were enacted with apparent disregard for US WTO commitments, such as its tariff bindings and the most favored nation principle enshrined in the GATT. These measures attack the oldest and most deeply embedded component of global trade liberalization, which has been central to the GATT/WTO\u0026rsquo;s mission since its creation\u0026mdash; non-discrimination and the removal of barriers to international trade with industrial goods. As such, they pose a far more immediate and direct threat to the WTO\u0026rsquo;s viability.\u003c/p\u003e \u003cp\u003eSubsidies, on the other hand, represent a beyond-the-border issue into which the WTO regime only ever made tentative forays. Establishing a robust regime in this area would require a level of economic integration that has only been achieved within the European Union through its state aid rules, and which remained unfeasible at the global level even at the height of the neoliberal era (see Hoekman and Kostecki 2013: 219). Even after the introduction of the SCM Agreement in 1995, most interventionist subsidies were left in the ambiguous space of the actionable category rather than being outright prohibited or otherwise firmly limited. This approach placed the responsibility on states to either initiate disputes, which would, in turn, establish precedents for what is or is not acceptable, or to leave the issue dormant, thus allowing actionable subsidies to remain in a de facto tolerated grey zone. As we have shown, WTO member states have overwhelmingly opted for the latter, with only a handful of disputes launched since 1995.\u003c/p\u003e \u003cp\u003eThis pre-existing lack of strict rules mitigates the impact of the return of subsidies on the WTO\u0026rsquo;s credibility, as the permissiveness of its subsidy regime thus provides member countries with more policy space to pursue active industrial policy without explicitly coming into conflict with the multilateral trade system. As the global economy shifts toward more explicit state interventionism, the WTO regime on subsidies may be an example of a new \u003cem\u003emodus operandi\u003c/em\u003e for the international organisation: one that accommodates active industrial policy while still remaining a relevant body for international cooperation, in the spirit of an emerging \u0026ldquo;\u0026rsquo;new\u0026rsquo; new international economic order\u0026rdquo; envisioned by Chang (\u003cspan citationid=\"CR17\" class=\"CitationRef\"\u003e2021\u003c/span\u003e). This flexibility may help the WTO adjust to the shifting world order while preserving its core function of facilitating and upholding the removal of discriminatory on-the-border trade barriers, mainly tariffs, an area where most countries (with the notable exception of the US) still appear committed to adhering to WTO rules.\u003c/p\u003e \u003cp\u003eWhether this coexistence proves sustainable will depend on the WTO\u0026rsquo;s ability to uphold the other two key features of the subsidies regime: the prohibition of openly discriminatory subsidy schemes and the conditional allowance for temporary countervailing duties. As our article has shown, both elements have been relatively well-enforced in the post-1995 period, and their continued survival is crucial for limiting the trade-distorting effects of industrial subsidies and maintaining a pathway for WTO-compliant trade remedies. Together, these two features can encourage states to pursue interventionist policies in a less provocative and beggar-thy-neighbor manner. They also provide a structured response to foreign subsidies that stops short of a full-scale reintroduction of tariffs. If the WTO can preserve this balance \u0026mdash; tolerating a broad range of subsidies while acting against clearly discriminatory practices and allowing proportionate countermeasures \u0026mdash; it may not only survive into the post-neoliberal era but help shape it into a more cooperative and less conflict-prone trade order.\u003c/p\u003e"},{"header":"7. Conclusion","content":"\u003cp\u003eThe article examines the ongoing transformation of the global economy, marked by the re-emergence of industrial policy, within the regulatory framework of the WTO, specifically the Agreement on Subsidies and Countervailing Measures (SCM Agreement). Specifically, it studied the extent to which the increasing use of subsidies violates countries\u0026rsquo; WTO commitments, and to what extent it merely takes advantage of policy space that has always existed under the WTO rules but has not been fully utilized previously. Drawing on an analysis of a database of all WTO disputes invoking the SCM Agreement, it shows that the regime has historically been permissive\u0026mdash;particularly toward subsidies not explicitly tied to trade performance\u0026mdash;and has produced relatively few rulings against their use. It argues that the new industrial policy, while seemingly at odds with the ethos of liberal globalization, can operate within the existing WTO regulatory framework rather than in open defiance of it.\u003c/p\u003e \u003cp\u003eUnlike in the case of the violation of WTO rules on tariffs, which are clear-cut and easily recognizable, the possibility of using actionable subsidies remains shrouded in ambiguity and it is rarely contested, allowing states to pursue active industrial policy while still engaging in some degree of cooperation within the WTO framework. In that regard, the ambiguity of the subsidies regime might not be a bug, but a feature \u0026mdash; one that allows the global trading system to bend, rather than break, under the pressures of a transforming economic regime. This insight offers a more nuanced view of the WTO\u0026rsquo;s place in the emerging post-neoliberal order. Rather than seeing the WTO as either a bulwark of globalization or an obsolete relic, it may be more accurate to view it as a legacy institution being repurposed to coexist with new forms of state-led capitalism. Its core mission of regulating on-the-border barriers remains broadly respected by the vast majority of members, and its tolerance of industrial subsidies may facilitate a stable if looser, global trade regime that accommodates both economic nationalism and multilateral cooperation.\u003c/p\u003e"},{"header":"Declarations","content":"\u003ch2\u003eFUNDING STATEMENT\u003c/h2\u003e \u003cp\u003eThis research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors. The authors were supported by institutional resources, such as doctoral scholarships or university employment.\u003c/p\u003e\u003ch2\u003eAuthor Contribution\u003c/h2\u003e\u003cp\u003eBoth authors wrote and reviewed the manuscript. P.S. contributed the tables on WTO disputes.\u003c/p\u003e\u003ch2\u003eData Availability\u003c/h2\u003e\u003cp\u003eData on WTO disputes concerning the use of state subsidies come from the WTO's website, available at: https://www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm\u003c/p\u003e"},{"header":"References","content":"\u003col\u003e\u003cli\u003e\u003cspan\u003eAdekola, Tolulope Anthony. 2019. \u0026lsquo;US\u0026ndash;China Trade War and the WTO Dispute Settlement Mechanism\u0026rsquo;. 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Equitable Growth, Finance and Institutions Insight Washington, D.C. : World Bank Group. \u003cspan class=\"ExternalRef\"\u003e\u003cspan class=\"RefSource\"\u003ehttps://documents.worldbank.org/en/publication/documents-reports/documentdetail/099062623130526530/P17047207d\u003c/span\u003e\u003cspan address=\"https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099062623130526530/P17047207d\" targettype=\"URL\" class=\"RefTarget\"\u003e\u003c/span\u003e\u003c/span\u003e942a01e0b07a091ffe0c1e9ac.\u003c/span\u003e\u003c/li\u003e\u003c/ol\u003e"}],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":true,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":false,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":false,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"WTO, SCM Agreement, subsidies, industrial policy, deglobalisation","lastPublishedDoi":"10.21203/rs.3.rs-6454403/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-6454403/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThe global economy is undergoing a major transformation marked by a rise of state economic interventionism, reflected especially in the return of industrial policy. The article examines how this resurgence intersects with the existing multilateral trade framework, namely the WTO\u0026rsquo;s Agreement on Subsidies and Countervailing Measures (SCM). Drawing on an analysis of a database of all WTO disputes invoking the SCM Agreement, the article shows that the regime has historically been relatively permissive. The new industrial policy, while seemingly at odds with the ethos of liberal globalization, operates largely within the latent flexibilities of the WTO framework rather than in open defiance of it. The SCM Agreement\u0026rsquo;s limited scope and enforcement capacity may serve as an example of a new \u003cem\u003emodus operandi\u003c/em\u003e for the organization in the context of increasing state interventionism, enabling a form of coexistence between multilateral trade rules and a more active use of industrial policy.\u003c/p\u003e","manuscriptTitle":"Old Rules in a New Era: The WTO and the Resurgence of Industrial Policy through the Lens of the SCM Agreement","msid":"","msnumber":"","nonDraftVersions":[{"code":1,"date":"2025-05-09 16:02:15","doi":"10.21203/rs.3.rs-6454403/v1","editorialEvents":[{"type":"communityComments","content":0}],"status":"published","journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true}}],"origin":"","ownerIdentity":"901151b7-d925-4a1a-a20c-8eb24c65dba2","owner":[],"postedDate":"May 9th, 2025","published":true,"recentEditorialEvents":[],"rejectedJournal":[],"revision":"","amendment":"","status":"posted","subjectAreas":[],"tags":[],"updatedAt":"2025-09-30T12:53:23+00:00","versionOfRecord":[],"versionCreatedAt":"2025-05-09 16:02:15","video":"","vorDoi":"","vorDoiUrl":"","workflowStages":[]},"version":"v1","identity":"rs-6454403","journalConfig":"researchsquare"},"__N_SSP":true},"page":"/article/[identity]/[[...version]]","query":{"redirect":"/article/rs-6454403","identity":"rs-6454403","version":["v1"]},"buildId":"8U1c8b4HqxoKbykW_rLl7","isFallback":false,"isExperimentalCompile":false,"dynamicIds":[84888],"gssp":true,"scriptLoader":[]}